A History of Canadian Economic Thought
A History of Canadian Economic Thought
A History of Canadian Economic Thought
Thought
Routledge History of Economic Thought Series
Robin Neill
Preface ix
1 The economics of settlement 1
2 The economics of the Maritimes 21
3 Pensée économique, dix-neuvième siècle 39
4 The economics of John Rae, 1822–34 57
5 The Nationalist School, 1830–90 72
6 Monetary theory and policy, 1812–1914 92
7 Some intrusions of history, 1890–1930 109
8 The staple thesis, 1920–40 129
9 Pensée économique, vingtième siècle 149
10 Keynes in a small open economy 172
11 The economics of the West 191
12 A North American discourse 204
13 Conclusion 226
Notes 228
Bibliography 263
Index 290
vii
Preface
ix
x Preface
Robin Neill
1 The economics of settlement
All five of the easternmost political divisions of what is now Canada came
into existence with a problematic reliance on primary product exports. In
Newfoundland the fishing interests opposed permanent settlement of the
Island, but, in the end, they were the instrument by which settlement occurred.
France encouraged settlement in New France, using a grant of monopoly
in the fur trade as a reward, but, in the end, settlement occurred and succeeded
despite the fur trade. Nova Scotia became a British possession as a result
of military and naval advances up the east coast of North America. Settlers
in the new colony tried to repeat the pattern of balanced growth that had
characterized the colonies to the south, but with very limited success.
In each case the situation of the colony elicited written comment, an
assessment, and some kind of remedial proposal; which, invariably, was not
put into effect. These constructions or commentaries, as the most eminent
of historians of economic thought, Joseph Schumpeter, would have put it,
were ‘pre-analytic’ and ‘pre-scientific’. They were not theories, but only the
elements of a definition of the problems around which theories would
eventually cluster. From a certain point of view, however, in the Canadian
case, definition of problems is all that there is to economic thought. Well-
articulated theories, classical, neoclassical, neo-Keynesian, and others,
eventually came to have currency; and, on occasion, the debate in Canada
generated significant contributions to their elaboration. From the beginning,
Canada has been a full participant in western civilization in this respect; but,
perhaps because of that, or as a result of the country’s special characteristics,
its economic thought, Canadian economics, generally speaking, has not lifted
itself above the level of debate to the level of consensus.
Frank Underhill, an acknowledged Canadian historian, once said that
Canadians are ‘incapable of tragedy’. He meant that they have no common
ideal, no sense of common destiny. They have no perceived historic mission
that they might betray. He was partially right. What they have is a competition
of ideals and perceived identities. So it is with economics in Canada, much
1
2 A history of Canadian economic thought
NEW FRANCE
When Richard Caves elaborated a ‘vent for surplus’ theory in 1965,1 with
the intention of describing the economic development of Canada, he posited
an uninhabited geographical frontier from which a surplus of primary products
could be exported. The northern half of North America was inhabited, however,
and the skills and equipment of the indigenous peoples were important for
the survival of the first Europeans, and especially for the exploitation of the
fur trade that Caves was describing (see chapter 11). In agricultural technique
the Europeans had little to learn from the natives, except remedies for scurvy
and black flies, of course. So, ironically, with respect to the non-export sector
of the colonial economy, Caves was correct. For agricultural purposes the
land was treated as uninhabited, the native population being pressed into
reservations as cultivation spread. In a double irony, in the early years, the
institutional arrangement within which agriculture was carried on prohibited
exploitation of primary products under conditions typical of ‘an empty land’.
In an attempt to expose and remedy the weaknesses of that particular form
of settlement Pierre Boucher produced the first work in economics in Canada.2
The seigneurial system of land settlement was not an unconscious transfer
of French feudalism to North America.3 The seigneurs were, in fact, private
entrepreneurs who were granted lands on the condition that they settle and
administer them according to regulations laid down in France. Much of
the value of the lands, the oaks used in ship building, the minerals, was
reserved for the state; making it clear that the land was granted for agriculture,
not for commercial exploitation. Further, to prevent speculation, there was
a 20 per cent tax on the value of land at the time of sale. To prevent absentee
ownership the seigneur was required to establish a residence and administer
his grant on the spot. The entire scheme, including similar regulations to
ensure the stability of the habitants, strongly militated against agressive
profit taking by the grantee. Regulations preventing the erection of a building
on a property of less than one and a half acres protected the habitants against
crowding and consequent high rents. Concentrations of population did take
place at Quebec and Ville Marie (Montreal), but no villages were authorized
among the seigneuries until 1753, just a decade before the British conquered
the colony. Denial of commercial profit to the seigneurs, and to others,
was intended to encourage settlement by ensuring a higher standard of living
for the habitants. Which it did, though only in the short run, if Boucher
was right.
Pierre Boucher, a former Governor at Trois Rivières and a seigneur by
The economics of settlement 3
virtue of his success in subduing the Iroquois, was well acquainted with
the problems of settlement in New France. He listed them: the climate, the
Indians and the scarcity of settlers. Nothing could be done about the climate,
but solving the problem of numbers would also solve the problem of Indian
raids. Accordingly, Boucher focused on the density of settlement in any
given area as the target variable for policy. Under the seigneurial system
the settlers spread themselves along the one great means of communication,
the St. Lawrence River. The result was a population too scattered for
economic or military co-operation. Concentration of settlers in smaller areas,
with consequent higher land-to-labour ratios, would have produced a surplus
product, a ‘social dividend’, arising from mutually beneficial exchange.
Success in settlement, then, required not only a large immigration, but some
means to fix the settlers to the soil about the larger centres. The necessary
concentration of labour could be maintained, Boucher added, only if the
settlers were denied property of their own and excluded from the quicker
returns and more exciting life of the fur trade.
Boucher was the first in a series of writers, ending with Edward Gibbon
Wakefield, to understand the function of a division of labour and its relationship
to property rights and costs of transportation in settlement policy. He was
the first, without a formal, explicit statement, in an even longer series of
economists who selected internal and external economies of scale as the
operative element in the development of the Canadian economy, rather than
the availability of natural resources. In short, he began the debate into which
would be built the analytic advances of economic science and, eventually,
the vast resources at the disposal of the modern economics profession. He
had no appreciable influence on policy in France or New France.
In comparison with New England, settlement proceeded slowly. The
seigneurial system was enforced, and, in its own way, was a success. The
habitants enjoyed a simple, secure life, better, on the whole, than that of
their class in France. They produced enough for themselves and the fur
trade. In some years there was a surplus for export. It was never very large,
and never reliable. In the main, they existed for themselves, centring their
lives about the residence of the seigneur, his mill, and the Church. When
France’s commercial and political influence came to an end, and, eventually,
when the fur trade passed off to Hudson Bay, the habitants remained.
Early writings about settlement and economic conditions in Canada
tended to be descriptive geographies containing very little that approached
economic analysis. Nova Scotia, in particular, seems to have produced these
accounts in abundance, beginning with that of the Acadian, L.-.A.Denys.
French settlement in Acadia (the Maritimes) was most successful in its
eastward advance from Port Royal along the Annapolis Valley. The colony
began its existence under something like the seigneurial system, but lack
4 A history of Canadian economic thought
of interest on the part of France and periods of isolation from the mother
country resulted in the emergence of freehold. There was no immigration,
no pressure to advance rapidly, and no great amount of arable land to expand
into in any case. If it had not been for their persistent connivance with the
French forces at Louisburg, after the English had taken Port Royal and
established Halifax, the Acadians might have continued their apparently
idyllic existence. As it was, many of them were expelled from their lands
when they interfered with the advance of British control.
On the rocky Atlantic coast the Acadians lived in scattered fishing
communities with no significant agriculture. The fortress at Louisburg was
completely dependent on outside sources for food. Some provisions came
from the Bay of Fundy, and an effort was made to settle Isle St. Jean (Prince
Edward Island) in the Gulf of St. Lawrence. Even so, and with supplies
coming from France, a lively trade sprang up with the New England colonies.
New Englanders, however, were quite prepared to trade with the fortress
one week and attack it the next. In general, the southeast coast was unsuited
to farming. With the exception of the speculator, L.- A.Denys, whose interests
were at stake, no one seriously considered agricultural development on
the Atlantic coast, except the ‘Dutch’ who settled at Lunenburg in 1853.
Having received a large tract of land from the French government, Denys
tried to make his fortune by directing French policy towards its development.
Despite his efforts, including the publication of his book in 1672,4 no action
was taken. Eventually he lost his rights to someone who stayed closer to power
in France. Denys was over-optimistic, but his arguments form the beginning
of an explanation of what French settlement there was, or soon would be, on
Cape Breton, the Gaspé and Newfoundland, where similar conditions prevailed.
According to Denys, settlement on the southeast Acadian coast would
have improved the cost structure of French off-shore fishing operations.
Most French fishing vessels came directly from France with supplies of
salt for on-board curing. They returned to their home markets having made
contact with the American coast only to purchase or gather food, water,
and wood for fuel. Denys’s contention was that the cost of supplies to the
fishery, in terms of storage space, time and/or barter price, was higher than
necessary. If the home government’s desire to establish settlers was made
effective in Acadia, the settlers would find a ready market for their supplies
in the demands of the fisheries. The outbound vessels would have a paying
cargo of settlers and settlers’ effects. Mutual exchange of surplus would
make both operations profitable.
The theoretical soundness of this primitive plan for balanced growth, in
which economies of scale were implicitly assumed to characterize the
interaction of primary product exports and internal development, established
the other side of the debate over economic development in Canada; that is,
The economics of settlement 5
the debate over the importance, in empirical fact and as a policy goal, of
staple-related dependent growth; but it brought no benefit to Denys. Still,
even while he was writing, small French settlements were growing in
Newfoundland and along the Gaspé, where resident fisheries and dry-curing
were combined with some agriculture and tied in with wet-cure operations
on the Banks. The strength of the arrangement was enough to keep the Gaspé
and Newfoundland from involvement with settlement centred in Quebec.
ATLANTIC CANADA
From the seventeenth to the nineteenth century, literature on Newfoundland
contained very little in the way of economic analysis, but something in the
way of political economy, of both the critical Marxian and the more
conservative variety associated with ‘the new industrial economics’5 of the
1980s. Both approaches to economic behaviour centre attention on the
efficiency generating characteristics of the structure of property rights,
though Marxists would not use these terms to describe their interest.
Problems in the Newfoundland fishery, according to John Reeves,6 were
associated with connivance by the ‘Adventurers’ of West Country England
to keep the enforcement of property rights in line with their short-run interests:
When they wheedled a poor planter into debt, they took his fish by force
from him, and would even break open his house to get it. …[The]
Adventurers claims to a free fishery seem to be these; namely, to be
free of all inspection from government; no justices, no courts, no custom-
house.7
Reeves may not have fully understood the nature of what he described,8
but the sorry state of Newfoundland depicted in his account was confirmed
by Arron Thomas,9 who described the island as
There was another side to the simple story, however. Harold Innis depicted the
ascendancy of the West Country Adventurers as a victory for ‘commercialism’
over state-supported, monopoly-control of British external trade, somehow
foreshadowing the eventual political separation of America from Europe and
‘the appearance in 1776 of Adam Smith’s Wealth of Nations’.11
Newfoundland was not alone in its eighteenth-century disorder. The
relative calm associated with separate political jurisdictions in seventeenth-
6 A history of Canadian economic thought
century North America was blown away by the wars that would establish
national boundaries at the close of colonial land seizures. Until the nineteenth
century what came to be Atlantic and central Canada was little more than
a military border zone between rival imperial powers. So it was that, during
the eighteenth century, military and naval concerns dictated the location
of urban centres, and influenced the growth of economic activity. There
were no contributions to economic thought until political order was once
again established. In central Canada, that is in Upper and Lower Canada,
economics arrived with the settlers who came from Britain to join the influx
from the former New England colonies. In the Maritimes it appeared among
the Loyalist immigrants themselves.
The Maritimes have a separate and unique history with respect to economic
development, and so they have a separate and unique economic thought and
policy. The question of economically appropriate forms of land settlement
that had exercised Boucher in seventeenth-century New France, and that would
preoccupy Upper Canadians after 1800, could not retain a central position
in the concerns of Maritimers. Attempts at agricultural settlement in
Newfoundland failed. Whether the settlers were legislated off the Island
because it failed, or to ensure that it would fail, want of arable land relegated
agriculture to a very small place in the Newfoundland economy. In the rest
of Atlantic Canada, taken as a whole, agriculture was never a dominant, leading
sector, despite efforts to make it so. In consequence, the economics of land
settlement remained latent in the agricultural possibilities of central and western
Canada during the years without economic thought in which the fur trade
extended the geographic frontier of what would be Canada.
with the British forces coming north from New England. Within twenty years,
the United States War of Independence reduced British North America to
the northern half of the continent, forcing Montreal-based fur traders to move
their operations north and west. Supply lines lengthened, overheads increased,
and the number of agents exploiting the trade declined as companies
amalgamated. Eventually there was only the North West Trading Company,
reorganized annually in two groups, the Montreal partners and the wintering
partners in the west. By 1811 this organization had penetrated to the Pacific
coast, In 1821, crumbling under the difficulty of maintaining co-operation
over such a vast territory with only the canoe for communication, it passed
into the hands of the Hudson’s Bay Company. Loss of the fur trade was not
a serious blow to the economy of Montreal. To the habitants in Lower Canada,
and to the British settlers in Upper Canada, it was of no consequence.
There were both backward and by-product linkages between settlement
and the timber trade. Where agriculture was a backward linked activity,
that is, where settlement occurred to meet the demands of the timber trade
for food supplies, it tended to be weak. It was located in areas best suited
to lumbering, rather than agriculture, and the settlers divided their time
between farming and lumbering. Where settlement was a by-product linked
activity, that is, in those areas settled by immigrants availing themselves
of cheap transportation across the Atlantic on otherwise empty timber ships,
in Upper Canada along the St. Lawrence River and the Lower Great Lakes,
agriculture was strong.
The timber trade itself, in the beginning, was not a commercially viable
operation. It was an outgrowth of the Napoleonic blockade of Europe, a
trade that became viable only with preferential treatment in the British
market. It began in the Maritimes in 1793. By 1806 it was centred in Quebec
City, the first raft from the Ottawa region reaching the city in that year.
The trade virtually by-passed Montreal. When it finally penetrated Upper
Canada in the area east of Lake Huron it was operating with saw mills to
produce lumber for markets in the United States. The trade was not a crucial
market for the settled areas of Upper Canada (Canada West) located to the
south. It was more important in the Ottawa Valley and along the line of
trade from Arnprior through Perth to the United States. When the preferences
were removed, and, with the demise of the sailing ship, the square timber
and mast trade to Britain ended, agriculture in Quebec and Ontario was
not substantially affected. Again, no one has questioned any of these things,
but for that reason it is important to keep them in mind.
Between 1763 and 1840 most Upper and Lower Canadians were engaged
in agriculture. Settlement from France ended with the Conquest, and
thereafter the French in Canada grew by natural increase, achieving, during
the period in question, one of the highest birth rates ever recorded anywhere.
8 A history of Canadian economic thought
its time to reduce them, or make rents and interest bear a greater share
of the burden. Rent and interest are the overflowings of production; and
with power to regulate these overflowings national debt cannot be too
extravagant in amount.19
His immediate goal was elimination of the British tariff on incoming grains.
That would reduce land rents, which, in turn, would reduce the price of
the wage good, food. The end result would be lower wages and higher profits
in manufacturing. His expectation was that the increased supply of grain
would come from Canada, produced there by the emigrated surplus
population of Britain. His conclusion was that
‘breeding itself will pay. I say it in full consideration of all the reasoning
of Mr. Malthus.’20
Paper money has not caused the present distress; but the cessation of
that activity which kept it afloat…. Let profitable employment be found
for all that are willing to work: let Government again issue its paper in
every direction, where it can yield a certain return and mankind may
flourish in peace as in war.22
He did not take this line of thinking to the point at which banking and the
issue of currency became yet another instrument for generating growth
and development. Within his lifetime others would (see chapter 4).
For his contribution to analysis of the economic situation of the colonies,
and to policy, and for his vituperative attacks on the establishment, Gourlay
was burned in effigy, lashed, imprisoned and driven into exile. His legacy
was a radical party of Gourlayites who were the historical roots of William
Mackenzie’s rebellion in 1837, and of the Reform Party that won responsible
government in 1848.
WAKEFIELD IN CANADA
By pouring labour only into England, you would not increase the capital
of that country, because the increase of labour would not find
employment, but as labour creates capital before capital employs labour,
and as, in America there is capital enough for the employment of more
labour, and room for the employment of more capital, therefore, by
pouring labour only into America, you would provide more capital for
the employment of still more labour.30
This, if it is true, opens a fatal wound in any theory based on the proposition
that growth is separate from development, that is, that growth is a consequence
of an increase in physical capital. It was not that the quantity of the factor
combined with labour was unimportant, however, and here Wakefield drew
on the insight that Gourlay shared, unconsciously, with Pierre Boucher; but
labour was productive of capital only when sufficiently concentrated to ensure
a division between tasks, and exchange. If the institution of private property
in land encouraged land grabbing and the dispersal of labour, then private
property was, in that particular, an inefficient institution. The size of a grant
of land, he wrote, ‘should never be so large as to encourage hurtful dispersions;
as to promote [the] cutting up of capital and labour into small fractions.’31
Wakefield’s particular solution for Canada was to require settlers to pay
for their land. That would ensure that they would stay in concentrations,
in the cities, for instance, where they would be productive, before dispersing
themselves in agricultural pursuits. The proceeds from land sales were to
The economics of settlement 15
the proprietors of the wild lands [would be] induced and enabled to settle
their grants, and…labouring immigrants [would] be enabled to obtain
employment for wages [and]…out of their savings, to purchase land at
the proposed price.…35
The benefits of the scheme would not have been realized immediately, of
course, so Wakefield proposed a loan of 150,000 to get the works underway.
The loan would be repaid from the taxes on wild lands, land sales and from
the sale of timber licences.
and apparent stagnation in the first third of the nineteenth century. It did
not supply a staple for export, nor was it linked to any other staple export.39
Upper Canada fared better, but not in a way that satisfied Montreal’s
ambition to be an emporium for the whole interior of the continent, nor in
a way that satisfied the requirements of a staple theory of growth. Montreal
undertook a series of torturous efforts to build canals and arrange tariffs to
get the midwest United States, for purposes of trade, included in the British
Empire. This brought it into conflict with the interests of Upper Canada
where agriculture, in a different way from that of Lower Canada, was
developing without fundamental reliance on exports.40
unimpeded by the cost of land, to the point at which settlers earned only
what they could earn elsewhere, so there was no rent.
Had the owner of the land, the Dominion government, sold the land,
settlement would have been limited to those willing to pay the price, and the
return from farming would have had to be higher to cover this extra cost.
Fewer farms, or only the better farms, or the better farmers, would have been
involved. Further, though Southey did not press his argument this far, the
price paid would have gone to the government, and could have been used to
defray those costs of settlement that, for greater efficiency, fell to it.
In the absence of land sales, there are a number of ways in which a
government might finance its part in the settlement process. In the absence
of sales, and consequently of rents capitalized in the value of land, there is
still a return to land, though not to a landowner. As in the case of any open
access resource, such as the fisheries, the return to the resource is ‘dissipated’
in an increase in the amount of equipment used to exploit the resource. In
a case of open access agriculture, the return to land shows up in larger
numbers of settlers and increased equipment sales. The government could
extract its revenue through a tax on the profits of equipment producers, or
through a tariff on imported equipment, either of which would raise the
cost of farming, just as would a price on the land, and reduce the number
of settlers. Of course, the total return to the resource would then be smaller,
and there would be no land rent.
Three broad questions can be asked about the economics of settlement in
nineteenth-century Canada. Why was the system of land sales, suggested by
Gourlay and Wakefield, and formally put in place under Sydenham in 1841,
replaced with a system of free grants in 1871? With what did the government
replace the revenue from land sales as a source of revenue to defray its share
of the cost of settlement? And finally, does the change in policy indicate anything
about the source of growth and development in the Canadian economy, whether
it was external demand or internal industrial advance?
Answers to the first two questions have been provided by Chester Martin.42
In the early part of the nineteenth century the United States had supported
its public debt with tariff revenues. For some time, during the rise of the frontier
interests and their alliance with the south, revenues from land sales removed
that justification of the tariff, though the tariff was not removed. When free
land became a device for containing the expansion of slave states, the earlier
justification for the tariff was put back into place. When the United States,
dominated by the north, decided to fill up the continent by the law of capture,
the purposes of the Dominion, which were to hold and settle the Canadian
west, had to be achieved by the same means. Raising the necessary revenue
to finance settlement fell to the tariff in Canada because of the competition
of free land in the United States. According to Martin:
The economics of settlement 19
The Dominion could well afford to give the land away for nothing: it
was quickly discovered that customs and excise revenues from rapid
immigration attracted by free homesteads could be much more profitable
than land sales. The Dominion, as the Hon. Frank Oliver once observed,
could ‘make millions out of the lands of the Northwest and never sell
an acre’. The increase in customs and excise revenues netted the federal
government’ a greater profit than it could conceivably have made through
the use of the lands for revenue purposes’.43
The situation was much more complicated than a simple choice between
land sales and tariff revenues would suggest, but the fact that that choice
was there to be made became an important element in the life of the tariff in
Canada. When Innis summed up the policy he put it in the following way.
How can we guarantee that we shall get a reasonable share of the abnormal
profits which accompany the exploitation of natural resources so that
we can at least pay the interest on the capital we have borrowed to
construct our railways and perhaps pay off some of the mortgage….
Excess profits taxes or corporation taxes are notoriously unsuccessful….
The alternative is of course the tariff on machinery and equipment used
for exploitation. A carefully adjusted tariff may make it possible to skim
off a substantial portion of the cream by taxing equipment, raising costs
of production and thereby reducing profits which would otherwise flow
off into the hands of foreign investors.44
The immensity of the task, the unpredictability of its results and the
bargaining power of private enterprise were factors which necessitated
extensive government support. Such support proved impossible without
reliance on the tariff. Revenue from land proved unsatisfactory and the
tariff guaranteed east-west traffic by restricting imports from the south,
building up industries in the east and providing revenue for construction.
45
The 1840–71 period has been designated as the time when a capitalistic
labour market became evident, and manufacturing as a separate activity
became important. These developments were more successful in Canada
than in the Maritimes, but that can be related to the weaker base of the
Maritimes in agriculture, depriving it of market size, and to the development
of agriculture in Canada in relative independence of any primary product
export, even in the agricultural sector itself. In this period the Nationalist
School of protectionism flourished (see chapter 5). This was the period in
which the monetary schemes of the Birmingham School were linked to
the tariff in explicit proposals for independent, balanced growth (see chapter
6). The policy of land sales seems to belong to the regions and times in
which reliance on primary product exports was least. There is, however,
no logical connection between free land and reliance on external demand
for a primary product. Assuming reasonably efficient capital markets, in
the absence of the rule of capture forced on Canada by the sectional dispute
in the United States, western agriculture, resting on a wheat staple export,
could have been financed by land sales.
Debate over the sources of growth and development in the Canadian
case has not turned on the economics of land settlement.
2 The economics of the
Maritimes
21
22 A history of Canadian economic thought
Hence the recent loss of 10,000 men as a result of war there is the same
as 50,000 at home. Much is to be gained by replacing these men.2
Otis Little elaborated. The short supply of labour in Nova Scotia kept wages
high, and this, in turn, raised the cost of agricultural produce. An increase
in the number of farmers would lower the cost of food, and, incidently,
increase the market for British manufactured goods. Further, an outflow
of emigrants and manufactures from Britain would reduce freight rates by
spreading overheads in transportation. Workers were needed for the fisheries
as well. If Cape Sable shore were settled it would support a winter cod
fishery. The basic need, however, was to improve agriculture. Settlers would
have to be supported for at least a year, but while clearing the land they
could produce ship timber, planks, masts, deal boards, shingles, loops and
staves; all of which might be carried from their settlements by ships supplying
them with horses, cattle, swine and other materials to begin farming. Boston
would take what provisions they produced in surplus.
Little made his report just before that brief span of years in which New
England and Nova Scotia were both governed from England. It was delivered
two years before the founding of Halifax, and seven years before the
expulsion of the Acadian neutrals, when British control had yet to be extended
to Cape Breton and Isle St. Jean (Prince Edward Island). Halifax was founded
in 1749 as a military and naval base to offset French fortifications at
Louisburg on Cape Breton Island. Both Halifax and Louisburg, having been
built on the rocky, southeast coast, were completely dependent upon distant
sources of food. The expulsion of the neutrals followed upon their supplying
the fort at Louisburg, and attacking an English settlement at Dartmouth
across the Narrows from Halifax. After the expulsion and the conquest of
New France, settlers moved north from New England; and the whole east
coast of North America, under English rule, was centred on Boston.
Within twenty years the American War of Independence severed the
Boston connection.
Separation of the United States from the British Empire created new
possibilities for the Nova Scotian economy, if it could restructure itself.
Insofar as Nova Scotia had been a hinterland to Boston, the Revolution
forced upon it a degree of independence. Insofar as there was a need to
replace New England in the triangle of trade between Britain, North America
and the West Indies, further settlement and development in Nova Scotia
became likely, but the character of development would be important.
According to one account, Nova Scotia would have to avoid the mistake
of the French in Canada, which was their willingness to pour energies into
flow of wealth and revenue, but was utterly destitute of that foundation
for its continuance which alone can constitute the real worth of any trade
or make it useful to a colony…this was the fur trade, which, unhappily,
engrossing all their attention limited them from giving due encouragement
to agriculture, which, in a new country, is the only sure defence against
present and future evils.3
The account was incorrect with respect to the activities of the French in
New France and Acadia, but it captured the dilemma of Maritimes
economics. It could have been argued that want of arable land, and other
factors, gave the region a comparative advantage in non-agricultural, primary
product exports, but the case was not clear then, and it has remained unclear.
and he was able to use their theories, necessarily modified, to express the
economics of the Maritimes. What he saw was an economic system in which
agriculture was underdeveloped. That is, that sector of the economy which,
for both Smith and the Physiocrats, was supposed to be the basis for natural
development, was so weak that the laissez-faire policies of Smith and the
Physiocrats seemed inappropriate. Young thought the Physiocrats to have
made a correct beginning. The proper sequence of economic development
was agriculture first, and manufacturing second. Nova Scotia, of course,
began with military activity, commerce and fishing, and then came to
agriculture. Smith had correctly amended Physiocratic doctrine by assigning
as much importance to manufacturing as to agriculture, though Young did
not accept Smith’s reasons for so doing. Smith had stated that manufacturing
was productive simply because ‘its receipts were sufficient to pay wages
and to replace worn out capital’.9 It was Young’s opinion that
Young thought that the best use of capital in any country lay in the
development of agriculture and manufacturing, and like the Physiocrats
and Smith, he deplored any mercantilist policies that might inhibit such
use of capital. His reasons for agreement were decidedly practical. Without
balanced growth the province would be caught in ‘the dealings of a shrewed
and opulent trader with a poor and dependent customer [in which] the balance
of profit leans too strongly on one side.’11
His opposition to the use of tariffs to encourage manufactures had a
similar practical twist. Agriculture had not progressed far enough in the
Martimes to provide the cheap wage goods that would make labour
inexpensive. ‘We must wait half a century before we can prudently and
successfully engage in them.’12
Economic thought in the Maritimes has always been a search for an industrial
strategy. Like francophone Québécois of the early twentieth century (see chapter
9), Maritimers looked for la politique qu’il nous faut. And like the writers of
the Ecole des Hautes Etudes they indulged in economic geography, taking
inventory of the stock they would have to deploy when the policy was found.13
With the exception of Haliburton’s classic Account,14 there was no theory
and little policy in any of these compendious descriptions. Like the industrial
strategists of the mid-twentieth century (see chapter 12) Haliburton deplored
external ownership of provincial debt, because it entailed the export of capital
generated in the colony, and he regretted the presence of a transient military
and commercial class, because its members retired to other parts of the
The economics of the Maritimes 27
Empire, taking the wealth of the colony with them. In a series of letters
published in The Nova Scotian in 183515 he challenged Haligonians to
emulate the industry and initiative of their Yankee cousins, and suggested
that if they did not take steps to develop their hinterland in the Annapolis
Valley, they would lose out to their rivals in St. John, New Brunswick.
In the 1820s and 1830s, with the support of the mercantile interests of
Halifax, Nova Scotia’s legislature enacted bounties and subsidies in aid of
agriculture and manufacturing. Nothing draconian, but enough to indicate
the direction of policy.16 When support from mercantile interests fell off,
these policy initiatives came to an end. In the 1830s and 1840s Britain’s
dismantling of her mercantilist system entailed expansion of free ports in
the West Indies and in the Maritimes. The carrying trade between Canada
and, especially, New England and the West Indies promised good returns.
So Maritimers turned from the prospect of replacing New England in the
Empire to being the intermediary between New England and the Empire.
The general direction in which the economics of the Maritimes was moving
at the end of the 1840s was recorded by Lieutenant Governor Harvey.
The dilemma of Maritimes economics had not been solved. Enthusiasm for
free trade contributed to the failure of free trade. When Nova Scotia acquired
the right to declare free ports at its own discretion, pressure to do so in particular
cases became irresistible. The result was over-investment in view of the amount
of trade to be shared around. In the 1850s trade between Canada and the West
Indies began to bypass the Nova Scotian ports. Whether as a last move in the
way of freeing trade, or as a first move to counteract the imminent loss of markets,
Nova Scotians agitated for intercolonial free trade, and for reciprocal free trade
with the United States. Both of these, by different paths, would be preliminaries
to Confederation of the British North American colonies, an outcome that too
late was seen to be not in the interests of mercantile Nova Scotia.
Emerging iron and coal interests of the Maritimes interior saw
Confederation in a different light. After 1850 the pendulum of success in
the debate over independent or dependent development began its backward
swing towards protectionism.
28 A history of Canadian economic thought
The most articulate protectionist the Maritimes ever produced was Abraham
Gesner. He wrote at least four reports for the New Brunswick government,
parts of a geological survey that mapped the colony between 1839 and
1842. In 1846 he reported to the province on the Londonderry iron and
coal deposits. He wrote two books: New Brunswick, with Notes for
Immigrants,18 and, his major work, The Industrial Resources of Nova Scotia.19
Gesner’s principle line of attack singled out what he alleged to be the
economically corroding effects of the staple trades.20 They had no long-
run benefits, and they permeated the population with a lack of energy and
a desire for ease and extravagance.
and Halifax. With the end of the wheat boom and bankuptcy of two of the
three transcontinental railways by 1914, demand for steel rails from the Sydney
mills fell off. In fact, the advent of the internal combustion engine was closing
the era of iron, coal and steam. What little the Maritimes had to offer the rest
of Canada was losing its appeal. Following the First World War, persistent
stagnation revived the search for a Maritimes development policy.
The channels by which the wheat crops of the west are marketed should
be decided primarily in the interests of the west…The true interest of
the Maritimes lies in the development of their own hinterland…the plea
should be for natural self development.33
In the late 1950s regional development became a way of life in the Maritimes.
By 1965, the Economic Council had produced A Development Program for
the Atlantic Provinces.41 Not to be outdone, the federal government formed
the Atlantic Development Board in the early 1960s, and endowed it with one
hundred million dollars. As T.N.Brewis pointed out, there was an inevitable
logical progression from income transfers to economic rationalization, and
from rationalization to development.42 The Nova Scotia Voluntary Planning
Board, established in 1963, produced its first plan for economic development
in the region. It called for the highest possible rate of growth. By 1969, when a
whole complex of federal economic initiatives was absorbed into a new
Department of Regional Economic Expansion, professional economists had
already produced several sub-regional development plans.
Much of the literature produced in the context of these research, planning
and development initiatives was sophisticated, quantitative description, but
a small portion of it was theoretical, making the exercise something of a
repeat of the early-nineteenth-century Intellectual Awakening. L.J.Walinsky
divided the quantitative material into two schools of thought.43 The first
school attributed slow growth in the Maritimes to a poor resource endowment
and location. The second attributed it to out-migration of human capital,
particularly entrepreneurial talent. Given these explanations of slow growth,
Walinsky listed the proposed remedies: ‘capital grants and loans, public
provision of industrial estates, tax incentives, industrial housing, vocational
training…labour mobility programs, provision of essential infrastructure,
and so on.’44 The studies were a latter-day repeat of the spate of statistical
descriptions that characterized the 1830s and 1840s. The attributions were
new. Walinsky gave no analytic explanation of the connection between the
causes to which problems were attributed and the remedies proposed.
A core of non-neoclassical development theory was articulated into the
particular conditions of the Maritimes. The Maritime region, having a well-
defined middle class, operational financial institutions and stable and
expanding industries, could not be considered underdeveloped, or even
depressed, except in a relative sense. Further, the relative depression could
be attributed to special, though sizeable, elements in the agriculture and
fisheries sectors. From this it was deduced that general improvement could
be achieved by encouraging migration from depressed to prosperous sectors
within the region. Not only would this raise the standard of living of the
migrants, without the more difficult move to other regions of Canada, but
the consequent concentration of demand in urban centres, and the retention
of population, skilled and unskilled, would raise standards in the progressive
regions as well. In part, new employment could be found by expanding
prosperous staple export activities, and by attracting ‘foot loose’ industry;
but, in the main, improved productivity and new enterprise would follow
The economics of the Maritimes 35
The output of academic economists in the region was evident in the published
papers of the annual meeting of the Atlantic Canada Economics Association.
In 1971, under the guidance of Joe O’Connell, then a member of the Atlantic
Provinces Economic Council and Chairman of the Department of Economics
at the University of Prince Edward Island, the academic economists of the
four Atlantic provinces formed an association to serve as a forum for discussion,
and as an instrument to tie them into planning initiatives being taken at that
time. The Association’s publication, A.C. E.A. Papers, has featured material
relevant to regional concerns.48 Local interest notwithstanding, A.C. E.A.
Papers revealed a high level of competence in the latest model-building and
econometric techniques.49 Evidently, some of Canada’s most provincial of
provincial universities encouraged original work on some of the most profound
questions in economic theory and history.50
More than in any other region of Canada, economic history, rejecting
the positivistic restraints of Cleometrics (see chapters 10–12), migrated
into Departments of History in Faculties of Arts. The quality of the results,
evident in the pages of Acadiensis, was further proof that there is more
than one way to skin a cat. Most of the work was a search for long-run
factors shaping the regional economy. What happened after Confederation?
Was relative decline immediate? Was it invariant over industries and regions?
The questions were answered, but in more than one way, and debate over
the causes of backwardness continued. Were they political consequences
of Confederation, structural consequences of capitalistic development, or
inevitable effects of efficient advance in both the continental and Maritimes
economies? Nonetheless, historians of the Maritimes economy painted a
very clear picture of a peripheral, dependent, and industrially
‘underdeveloped’ North American region.51
The third area of Atlantic Canadian economic thought did not properly
fall into the domain of economics, but into that of the New Canadian Political
Economy (see chapter 12). Comments on it would be beyond the scope of
this survey if it were not laced with some interesting economic history. A
brief citation will serve to capture the tone of the many works in this genre.
In this book, I argue that the Canadian state through its planning function
speaks in the name of liberal capitalism (equality of opportunity, free
market competition) but acts in the name of corporate capitalism
(privileged access to markets, concentration of capital). The state granting
program through the Department of Regional Economic Expansion
(DREE) negates its own target goals (re-instating market valuation)
through its actions. The more the state intervenes in the economy, the
38 A history of Canadian economic thought
The point seems to have been that all the arguments about a poor resource
base, poor location, technological obsolesence, and so on, were the fabrications
of the allied bureaucracies of corporate capitalism and the modem state. The
real cause of regional poverty was the creation of a class of partially employed
workers that could be exploited in the form of cheap labour, and the exploitation
of monopoly power by fish-processing companies that reduced the fishermen
to debt and kept them there by paying low prices.
Some of the works in the genre were excellent histories of industrial
organization.53 The work of Richard Apostle, Gene Barrett and Tony Davis,
associated with the Gorsebrook Research Institute at St. Mary’s University,
was a good source of economic data on the smaller fishing communities,
fishermen’s organizations and the interface of the fishermen with both small
and large processor-buyers.54 There were few, if any, Atlantic Canada
industrial organization studies in the New Institutionalist paradigm that
played an important role during the 1970’s neoclassical revival.
Whatever its manifestation, in the 1980s economic thought in the Atlantic
region was characterized by an acceptance of the region’s dependence on
primary product exports. Its major thrusts were to elaborate historical or
institutional explanations of this constraint and to prescribe appropriate
maximizing behaviour. Indeed, the whole history of economic thought in
Atlantic Canada is an account of the region’s attempts to escape or minimize
the consequences of reliance on a particular set of primary product exports.
3 Pensée économique,
dix-neuvième siècle
39
40 A history of Canadian economic thought
Le milieu de la pensée
It is an economics that has little room for what are called ‘scientific’
expositions, that is, general and abstract presentations based on
observations or existing theories. Its principal and intense preoccupation
is to put economics in the service of a particular goal, that is, ‘the economic
independence of French Canadians’. Given the special situation of the
French in North America, any other preoccupation would seem
unconscionable. Nonetheless, it is not less scientific, in another sense,
than the economics of others who are less explicit about their practical
preoccupations.
It is no secret, for example, that Adam Smith wrote the Wealth of
Nations in the light of England’s situation in the eighteenth century,
and that he concluded that laissez-faire was the best policy in that situation.
Other countries did not adopt that policy because it was not in their
interests. The Marxists opposed it because it was not in the interest of
the class of people they represented. Keynes, too, for all his abstract
reasoning, adjusted theory to the problems of England in the 1930s,
and rationalized a particular kind of government intervention. And
Frederick List opposed liberalism and liberal economics because it was
contrary to the interests of Germany in the nineteenth century. Economists
in Quebec, after the fashion of Adam Smith and J.M.Keynes, have turned
to economics with the problems of Quebec in mind.
Pensée économique, dix-neuvième siècle 41
life what they had lost politically. Unfortunately, the expansion of their
community and its characteristic activities was blocked by large land
holdings, forest reserves, and the setting aside of lands for ‘freehold’ tenants.
The anglophone government did not help, and, in fact, showed no interest
in agriculture in the seigneuries. The merchants who came to control the
government treated the colony as a source of raw materials for England,
and a market for its manufactured goods. Following the brief prosperity
of the War of 1812, agriculture fell into depression, and then into crisis,
exacerbating the political situation, and leading to the Rebellion of 1837.
The official response to the rebellion was the subjection of the colonial
executive to the wishes of a largely francophone Assembly in a united
Canada.5
As a consequence of its War of Independence, the United States had
extracted itself from British colonialism. This put it in a position to begin
its long climb to industrial supremacy, according to Minville, at a time when
the economy of Lower Canada was stagnating and its seigneuries were
becoming over-populated. The resulting exodus to the United States began
in the 1830s, peaked in the 1860s, and continued until the 1920s.
With the achievement of responsible government, Canada should have
undertaken a programme to expropriate the large land holdings, plan and
support settlement, and encourage commercial activities that would lift
the economy from its narrow dependence on agriculture. In those years,
however, the popular policy was laissez-faire. In the period immediately
after the achievement of responsible government, especially in the years
of the Reciprocity Treaty with the United States, those who held that what
was good for Britain was good for the colonies had the upper hand. So,
according to Minville, it was not until the National Policy of 1878 that Canada
extracted itself from British colonialism.
Under the National Policy railroads were built and settlement undertaken,
but most of the initiatives were taken in Western Canada. Railroad
construction and settlement in Quebec were given very little support.
Industrialization in Quebec came in the form of alien, liberal, individualistic
institutions. Though it looked like progress, and some Canadiens, despite
their agricultural background and their want of capital, did well for a time,
the working class suffered, and in the great merger movement of the 1890s
many of the successful Canadiens were bankrupted, bought out, or subsumed
under larger American or Anglo-Canadian corporations. Even at that, the
basic problems growing out of these developments did not become fully
evident until the depression of the 1930s, so Minville said.
Having accepted Angers’s definition of la pensée économique, and
Minville’s perspective on the economy in which it developed, we may be
in a position to understand what it was.
Pensée économique, dix-neuvième siècle 43
ETIENNE PARENT
Un pays pas plus qu’un particulier, ne doit tirer du dehors ce qu’il peut
faire lui-même.8
En ma qualité de libre échangiste, je suis en principe opposé aux
primes d’encouragement tout comme aux droits protecteurs. Mais je
ne suis pas de ceux qui disent: Périsse la Patrie plutôt qu’un principe;
44 A history of Canadian economic thought
mais je dis: vive la Patrie avec les principes intacts, si ça se peut, mais
avec les principes modifiés, s’il le faut. Les principes de l’ économie
politique ne sont pas absolus comme ceux de la morale.…Je suis bien
prêt à admettre que dans un jeune pays où les capitaux et 1’expérience
manquent, il est bien à propos de protéger dans les commencements
les industries évidement viables.9
Protection and subvention were not the sine qua non of economic
development and growth in the classical economics Parent would have read.
Capital, a surplus of productive power, would have to come from somewhere:
from savings, according to Nassau Senior, from expropriation, according
to Karl Marx.
Qu’on ne dis pas non plus que les capitaux nous manquent: car s’il n’y
a pas partout accumulation de capitaux en peu de mains, partout il y a
1’association. Ce qu’un homme ne peut pas faire, deux, quatre, dix cent
le peuvent, sans gêner leurs opérations ordinaires.10
Of course, he was quite right. Capital could, and would be centralized and
allocated to more efficient uses than those to which it could be put in the
hands of its scattered, original owners, but he did not specify the source of
capital or the institutional intermediaries through which it would be
centralized. These things were being specified by someone else who had
lived in Montreal in the 1820s (see chapter 4).
Sometimes Parent was a nineteenth-century liberal, and sometimes he
was not. It depended on whether liberalism ran contrary to the values and
aspirations of his people. Nowhere is this more evident than in his 1852
address, Considérations sur le sort des classes ouvrières. Elements of the
address were consonant with an extremely hard-headed liberalism, but they
were rooted in Parent’s fear of atheism and of the emigration of his fellow
citizens to the anglophone, racial melting pot to the south. Thus he advised
the workers to refrain from breaking the laws of economics as established
by God and set out by Adam Smith. They should adhere to their Catholicism,
because, in the last analysis, they would be unable to raise wages by striking.
If their situation became too desperate, they could return to the land. The
answer to the labourer’s problems was government support for new
agricultural settlements, and the frugality of the workers themselves. They
ought to avoid luxury. They ought to establish savings banks. They ought
not to go to the United States, and they ought not to become communists.
And, the final appeal, ‘Notre nationalité avant tout’.
A great and recurring theme in economic thought in Quebec has been
the loss, the absence, and the re-establishment of a francophone bourgeoisie.
Pensée économique, dix-neuvième siècle 45
It has been restated in at least four major revisions up to the work of Jean-
Luc Migué’ (see chapters 9 and 12). In yet another address given in 1852,
De I’intelligence dans ses rapports avec la société, Parent gave the theme
its classic form.
for the support of French culture. Confederation was necessary as the only
means of defending francophones against the consequences of the overall
anglophone presence in North America. Protectionism was the economic
instrument necessary for the federation’s survival. The Conquest had
eliminated the francophone economic elite and brought about
deindustrialization of the French population. Protectionism was the
corrective needed. ‘C’est notre devoir, spécialement le devoir de ceux d’
entre nous qui sont Canadiens-français, de créer une Industrie nationale….’18
Cléopas Beausoleil, editor of Nouveau-Monde, repeated assertions that
tariff protection would correct an unfavourable balance of trade, reverse
economic slumps, and lead to industrialization. So widely accepted was
this sort of thinking that the Quebec Legislature formally endorsed
protection. Even Wilfrid Laurier, who would subsequently lead the federal
Liberals on a platform of free trade with the United States, gave the policy
formal, public support. The movement reached its peak shortly before the
election of 1878, with Beausoleil pressing arguments drawn from Frederick
List and the American protectionist, Henry Carey.
If the French in Canada had expected that westward expansion was going
to mean an expansion of the existing linguistic structure of the Dominion,
what actually happened must have been a disappointment. The French were
outnumbered. Louis Riel, who attempted to lead the mixed French and
native Métis in the establishment of a separate nation on the Prairies, was
hanged. The residents of Manitoba, the first Prairie province, in one more
act that enhanced the jurisdiction of the provincial governments, refused
publicly to fund French Catholic schools. The money that was expended
on railways and settlement under the National Policy was expended largely
in the West, where the French were outnumbered, rather than in Quebec.
Even Northern Ontario, which had the same dubious agricultural prospects
as the Laurentide in Quebec, received considerably larger benefits.
In truth, protectionists in both English- and French-speaking Canada were
disappointed. The National Policy of balanced growth that emerged from
the situation of Southern Ontario and Southern Quebec in the middle years
of the nineteenth century, was carried away by the forces of history (see chapters
4, 5 and 7) to become a policy of continental expansion based on the export
Pensée économique, dix-neuvième siècle 49
More than 41 per cent of original homestead entries from 1870 to 1927
were cancelled: more than forty-one out of every hundred Canadian
homesteaders fell by the wayside before acquiring patent to their original
homesteads. How many after acquiring patent turned their homesteads
over to speculators and land companies it would perhaps be impossible
to estimate.26
We can begin the review of the literature with the work of Stanislaus Drapeau,
a civil servant and journalist, whose approach was as typical as anyone’s
could be.
Drapeau’s first work, Etudes sur les developments de la colonisation
du Bas-Canada depuis dix ans: 1851–1861,27 was a history of agricultural
settlement, but it concluded with suggestions for settlement policy: more
public funds for an accelerated road building programme, publicly supported
settlement agencies, land grants, the establishment of a special department
of settlement, and public support for settlers’ associations. Really, an all
out effort to finally establish the French fact in Canada. ‘Colonisez…c’est
assurer la conservation de notre nationalité.’
His second work, Coup d’oeil sur les ressources productives,28 was a
general treatment of the resources and economic institutions of Canada.
Its conclusion was a general condemnation of any stinting in settlement
programmes. No country, he asserted, with resources and useful works would
be impoverished. Why, then, he asked, had there been stinting with respect
to settlement in Quebec? The money was going to the West, where massive
immigration was reducing the francophone population of Canada to a
minority position. Drapeau suggested a separate immigration and settlement
division for Quebec. Later he wrote Le guide du colon français, belge, suisse,
etc. for the Dominion Government. In these works there was no reference
to the technicalities of farming new lands, or the economic prospects of so
doing. Only will and effort were seen to be necessary for success.29
François A.H.LaRue, a graduate of Louvain and a Professor of Medicine
at Laval University in Quebec City, was more comprehensive in his approach
to settlement, but less ‘typical’ in more than one way. He promoted scientific
agriculture as an academic subject. He wrote a three-volume economic
geography of Quebec 30 based on data published by La Société
d’encouragement de 1’industrie locale. His general assessment of the role
of settlement in the economic future of Quebec appeared in a final, two-
volume work, Mélanges historiques littéraires, et économie politique.31
LaRue’s advocacy of agricultural expansion in Quebec was predicated on
the failure of the National Policy and of Confederation itself. Canada could
not survive and industrialize without United States capital and markets,
and LaRue saw North American free trade and annexation as the inevitable
Pensée économique, dix-neuvième siècle 51
Apart from the effects of the nationalist bias, lionized by Angers, there is
one other element of economic thought in nineteenth-century Quebec that
seems to have been quite distinctive when compared with the literature of
English-speaking Canada, that dealing with money, and financial institutions.
Much of Quebec’s concern in this matter was related to the settlement
movement, in particular, to the role of credit in agriculture; but, of course,
the role of credit in industrial and commercial pursuits was also in question.
Concern with agricultural credit was a natural outcome of the abolition
of the seigneurial system. Reorganization consequent upon abolition came
amid propitious circumstances. Trade expansion in primary products,
associated with the Canadian-American Reciprocity Treaty, was in full swing
as the United States built up to its Civil War. Markets for Canadian natural
products were good, making the forest cleared by settlers a viable cash
crop. It was a period of general expansion, but it was marred by recurring
financial crises. Francophone Quebec responded within its own tradition.
In 1862 a convention was held at Ste. Hyacinthe to inaugurate a system
of land banks. Anglophone Quebec, as represented by its press, was opposed.
A certain George Henry Macaulay drew up a brochure in English to meet
the situation.40 It explained itself in its title: The System of Landed Credit,
or La Banque de Crédit Fonçier: the working of that institution in Europe
with regard to its principles and advantages and…the introduction of the
system into Lower Canada briefly considered.41 The general idea was to
establish banks that would lend to farmers on the security of their land.
The credit of the banks, themselves, was to be based on public subscription,
and guaranteed by the credit of the province.
The crédit fonçier idea was slow to catch on in nineteenth-century Quebec,
and the resulting institutions did not become major players in the financial
system. Perhaps for that reason the scribbling set gave it scant attention.
In a notable exception, in 1875, La Revue Canadienne carried a series of
six articles, in which the character and advantages of the scheme were spelled
out in considerable detail.
Quebecers, anglophone and francophone, have always been conservative
in their approach to money and banking. Rural francophone Quebec did
not need a sophisticated money system for most of its transactions, and
anglophone Montreal was the established banking centre of Canada
throughout the nineteenth century. Neither group had any time for the
heretical monetary ideas that characterized economic thought on the frontier
in Canada West. In Quebec, even the innovations were conservative, the
outstanding example being the savings banks of François Vezina.
François Vezina was a prominent businessman and financier who was
54 A history of Canadian economic thought
intent on easing the credit problems of the less fortunate, without having
the government interfere in the banking system. According to his
biographer,J. C.Langelier,42 Vezina controlled a two-tier banking enterprise,
a savings bank operation for low-income groups, and a commercial bank
for entrepreneurs. The savings bank operation came first.
In 1848, with the help of the St. Vincent de Paul Society, Vezina started his
first savings bank, la Caisse d ’Economie Notre-Dame du Québec. His banks
multiplied rapidly. In 1860 he established la Banque Nationale, an association
of the principle merchants of the French-speaking community, to meet the
needs of commerce and industry.
Vezina undertook a wide-ranging study of political economy, and
produced several books, including Les Banques and Le Département de
la Trésorerie provinciale.44 Les Banques was a criticism of an 1868 plan
of the Solicitor General, John Rose, to establish the United States system
of national banking in Canada. Vezina preferred the ‘Scottish System’ of
private banking. In his 1860 work on the Treasury he had attacked a similar
proposal made by the then Minister of Finance, A.T.Gait. Vezina feared
that a government bank would monopolize the issue of currency and then
suspend conversion, to the detriment of the country and of the private banks.
The initiatives criticized by Vezina were two of the important moves in
the general evolution of banking in nineteenth-century Canada. Wide-
ranging discussion of money and banking, and the institutional innovations
that occurred in the United States in the first seventy years of the nineteenth
century spilled over into Canada, and affected, particularly, the western
frontier. In the long run, British monetary thought informed opinion in
Canada, but in 1868, the national banking system of the United States was
the centre of attention (see chapter 6). Sides in the debate were well formed.
Isaac Buchanan, an Upper Canadian businessman and politician, wanted
an irredeemable paper currency. A.T.Gait, a Lower Canadian businessman
and politician, favoured a government bank and a redeemable currency.
Buchanan opposed the idea of a government-owned bank because he saw
it as an instrument of financial stringency. Vezina opposed the government
bank because he saw it as an instrument of inflation. Buchanan’ s notion
that capital could be generated and industrialization supported by fiddling
with the monetary system made no sense to Vezina for whom ‘le seul moyen
Pensée économique, dix-neuvième siècle 55
Note: This chapter has not been written for the general reader. Although
it deals with matters of fundamental importance for the history of
economic thought in Canada, it can and should be passed over by anyone
not interested in economics for its own sake.
In vision and originality, Rae far surpassed economists who were successful….
The Statement of Some New Principles…with ten additional years of work, graced
by an adequate income, could have grown into another, and more profound Wealth
of Nations.1
57
58 A history of Canadian economic thought
assumptions about incomes per period, and assumptions about the pattern
of changes in time preference over different agents and different periods.)
This, of course, says nothing about where the interest comes from other than
that it is a consequence of redistribution of something over agents and time;
but let us drop this line of questioning.
Suppose all agents in an economy had a strong and equal preference
for present consumption. There would be no lending and no interest, no
investment and no growth. It was something like this pattern of time
preference that Rae thought to be the major block to capital accumulation.
He referred to it as a selfish, or, present-minded form of behaviour that
frequently could be observed in different societies; in that of the native
North Americans, for example, because their nomadic life left them so
exposed to uncontrollable loss of possessions that any other behaviour would
not have been appropriate.8 Under other circumstances, however, the ‘social
and benevolent affections’9 lead men to procure goods for others and to
provide for the future, and this leads to both ‘augmentation’ and
‘accumulation’ of instruments;10 that is, to development and growth, by
which’ the increase of stock or capital’ is brought about.
In this way, then, Rae defined capital. To escape the principal difficulty of
modern capital theory, he had to have it measured by something other than
its money value, something other than its value in exchange. He was aware
of this need.
All instruments were directly or indirectly formed by labour guided by
intelligence. They all had a capacity to satisfy wants, and in time their capacity
to do so was exhausted, that is, consumed.19 Still, the measure of their capacity
was not their relative ability to bring about certain results in satisfying wants.20
Instruments had a capacity to bring about events that would take a certain
amount of unaided labour to produce. Instruments were formed by labour,
however, so there was a numeric relation between the amount of labour taken
to produce them and the amount of labour they replaced. Now, a length of
time intervened between the formation of an instrument and its exhaustion,
that is the termination of its ability to replace labour. Suppose all instruments
lasted forever. Unless they replaced no labour at all, there would be some
time at which they would have replaced double the labour used in producing
them. The sooner this time arrived, the greater the capacity of the instrument;
that is, the more ‘quickly returning’ instruments would have the greater
capacity. So, by setting the amount of labour replacement at some proportion
of the labour used in making an instrument, ten years for two to one, or three
The economics of John Rae, 1822–34 63
years for two to one, (or twenty to one in ten years or thirty to one in ten
years) an index of the capacity of instruments could be estimated.
But was this measure of capacity not based on a relative measure, the
value of labour in exchange?
According to Rae, all instruments were valued in exchange in proportion
to the amount of labour used to produce them.21 By comparing instruments
with one another according to the rate which they exchanged for one another,
and choosing one of them as numeraire, an estimate of the value of all
instruments could be made. This would be a measure of ‘relative capital’.22
The measure of ‘absolute stock, and absolute capital’ was the index ‘expressing
in present days’ labour the whole capacity of the instruments owned by a
society’.23 A day’s labour is a day of labour, not its relative value.
Under certain circumstances the relative and absolute value of capital
would change independently of one another. To understand this it was
necessary to understand that capital increased in two ways, by
‘augmentation’ and by ‘accumulation’.
Depending on the strength of its desire to provide for the future, its
effective desire to accumulate, a society would form and use instruments
with a certain capacity, as measured in absolute value. If the desire was
strong, it would form instruments even of the more slowly returning types.
If it was weak, only those of the more quickly returning types.24 The process
of forming the instruments was accumulation.
Capital also increased by invention, the application of intelligence in
rearranging instruments to permit them to exhaust their capacity in a shorter
period of time, that is, to replace (say) ten days’ labour in a year, rather
than in three years. 25 Capital increasing in this way increased by
augmentation.
Now, suppose the relative measure of capital was the same as its absolute
measure, and suppose further that invention doubled the capacity of stock;
then the absolute value of the stock would be double its relative value.26
Rae states that when a society had formed all those instruments that return
in a period consonant with its effective desire to accumulate, ‘the absolute
and relative stock must, it is obvious, agree’.27 Whether Rae was correct in
this particular or not, what he had shown was that the absolute value of
capital could change while its relative value remained unchanged, at least
in the short run; and that, therefore, the absolute value of capital was distinct
from its relative value.
Rae measured capital in a way that was distinct from its relative value,
that is, its value in exchange, and so he avoided the principal difficulty of
modern capital theory.
64 A history of Canadian economic thought
manufactures from one country to another in which they had not up to that
time been pursued,34 transfers that were not accomplished by the efforts of
individuals acting alone. The start-up problems were too large to be motivated
by individual acquisitiveness. Not unusually the transfers were made by
migrating manufacturers who had been forced to leave their countries of origin
for political reasons. Accordingly, any expenditure by the state which would
spread the costs of importation of manufacturing over a larger number of
agents and over a longer period of time, and which would provide security
against the risks leading to failure, would lead to an increase of capital and
wealth. Similarly, in cases in which the benefit would accrue to all of society
and in some measure only35 to individuals bearing the cost of importing the
manufacturing, that is, when there were externalities, unless steps were taken
by the legislator to have all of society bear the cost through taxation, the
possible increase in wealth would not occur. Further, Rae continued, it is not
unusual for the costs of those producing the first few items of a new manufacture
to be high, but when the task is well learned and many items are easily produced,
costs fall. Accordingly, protection for infant industries can lead to cheaper
products and greater wealth.36 In short, there was no necessary connection
between the undisturbed self-seeking of individuals in the market and an
increase in the wealth of nations; and the burden that Smith placed on the
individual’s selfishness as a source of development and growth was more
than it could bear.
Rae was fully aware of the benefits of trade. His statement of the gains
from trade in the presence of comparative advantages, elaborated without
reference to David Ricardo, or anyone else, is clearer and more persuasive
than similar statements found in most modern classroom texts.37 Rae’s point
was not that Smith was all wrong, but that there were clear exceptions to
his system; so, as a system, that is, as a general explanation of the economics
of society, and as a basis for policy, it failed. Free trade was good in general,
but not in every case. Where natural endowments were the basis of
comparative advantage, free international exchange was the best policy.38
Where advantages were not natural, but learned, they could be transferred;39
and the transfer of technique from one country to another would not only
increase wealth directly, but would stimulate further invention as the need
to accommodate the production process to new circumstances was met.40
Finally, the importation of luxuries, that is commodities which do not
contribute to further wealth, would reduce the extent to which expenditures
were made on instruments that do; so, any interference with trade that would
inhibit the former and encourage the latter, again according to Rae, would
lead to an increase in wealth.41
Rae’s broad policy conclusions are succinctly put in the concluding
sections of his book.
68 A history of Canadian economic thought
According to the view of the nature of stock, and of the causes generating,
and adding to it, which has been given in this book, it would seem that
its increase is advanced:
I. By whatever promotes the general intelligence and morality of
society; and that consequently, the moral and intellectual education of
the people makes an important element in its progress.
II. By whatever promotes invention 1. By advancing the progress of
art and science within the community 2. By the transfer from other
communities of the sciences and arts therein generated.
III. By whatever prevents the dissipation in luxury, of any portion of
the funds of the community.42
The fundamental error on this subject of Adam Smith, and the present
prevailing school of political economists in England, lies in their
assuming, that what is true concerning an individual, is true also,
concerning a community, and maintaining consequently, that every
impost is so much absolute loss to the society, and every diminution of
it, so much gain. Before this assumption can be made good, with regard
to any particular impost, it is necessary that the three following questions
concerning it should be determined.
1st Will the duty so levied, by directly or indirectly effecting an
improvement in the arts, increase the absolute capital of the society?
2nd Will it prevent future waste, by the transfer of an art producing
useful commodities, the supply of which is liable to sudden interruption?
3rd Does it fall partly or altogether on luxuries, and is its real effect,
consequently, not to diminish, by so much, the annual revenue of society,
but only to apply apart of it, which would otherwise have been dissipated
in vanity, to supply funds for the necessary expenditure of the legislature.43
so, his system was fallacious, to use Rae’s term, and, when applied in
situations involving the counter-examples, it produced erroneous policies.
Rae, himself, did not have a system like Smith’s ‘system of natural
liberty’. Rae had a theory of the augmentation and accumulation of capital
on the basis of which he gave a new and, he thought, more scientific
explanation to the important truths found in Smith.
The theory of exchange, in Rae, is firmly rooted in capital theory, and,
in consequence, is an emendation of Smith’s theory. For Rae, the extension
of exchanges follows from an increase in the variety of instruments produced
through invention. With specialization in the production of each of the variety
of instruments, which is possible only if there is a concomitant increase in
exchanges, a more intense use is made of instruments of production. This
moves the instruments of production into more quickly returning orders,
that is, they return what they are going to return sooner. Given a fixed effective
desire to accumulate, this, in turn, leads to greater accumulation. For Smith
it had been otherwise. The propensity to ‘truck and barter’, leading to
exchanges, generated specialization, and specialization led to the invention
of instruments of production.
Adam Smith sets out from exchange, and makes it, and the division of
labour consequent on it, the source of stock, whereas I have endeavored
to show that exchange is the result of the increase of stock, and subsequent
division of employment, that the necessity for its existence is a
circumstance retarding the increase of stock, and that the benefits of
the art of banking spring from the facility which that art gives to the
process.46
What Rae would have said on other topics we do not know. According to
Warren James, whose work includes a number of Rae’s essays and articles,
Rae’s major work, a ‘statistical account of Canada’, was lost.47
Before we leave Rae there is one more passage from his New Principles
to which we must attend. It adds nothing to what has already been said
about the economics of John Rae. Its purpose is to accentuate a point that
Rae made with respect to Adam Smith, a point to which we shall return in
greater detail, citing other sources, when it is time to draw conclusions
about the economics of Canada and economics in Canada.
Here we have Rae citing a passage from The Wealth of Nations, in which
Smith makes the point at which Rae takes most offence. Smith is saying
that the quantity of wealth is tied to the quantity of capital pre-existing the
production of wealth, whatever else happens, and that there is no way to
increase the quantity of capital except by saving, and that the possibility
of underemployment of capital is not to be considered.
In the late 1950s, Hlya Myint49 criticized J.S.Mill for criticizing Adam
Smith for not, at one point, taking the line of argument that, in fact, Smith
did take in the passage cited above. (We have Rae criticizing Smith for
taking a certain position, and Mill criticizing Smith for not taking it, and
Myint criticizing Mill for criticizing Smith. This puts Rae and Myint on
the same side.) Myint did this in his elaboration of Smith’s ‘vent for surplus’
argument with respect to primary product exports as an engine of growth.
Myint’ s point was later picked up by Richard Caves, and misconstrued,
and, later still, Caves’s point was taken up by Urquhart. At about this same
time (the 1960s) Harry Johnson and Ted Chambers took up John Rae’s
position with respect to the process of development and growth. (Neither
made reference to Rae.) Chambers then entered into a debate, at some
academic distance, with Caves and Urquhart over the matter in so far as it
related to the historical experience of Canada. Johnson did not enter the
debate on this level.
These matters, having to do with an underlying hypothesis of the present
work, will be dealt with more thoroughly in the two concluding chapters,
10 and 11, but especially in chapter 11.
5 The Nationalist School,
1830–90
72
The Nationalist School, 1830–90 73
the former New England colonies, took possesion of Upper Canada; and,
even after British liberal policy had established democratic, responsible
government, and after bouts of annexationism and free trade, the Tory party
that represented them remained the dominant political force in the province.
In Canada the Court Whigs came close to achieving what they had advocated
for the American colonies for over a century, a federation within the Empire.
As Adam Smith had pointed out,9 federation, with colonial representation
in an Imperial Parliament, would have been a device to permit the more
ambitious in the smaller, distant communities to find a higher outlet for
their energies, and to rescue the main task of government, the promotion
of commerce, from the passion and tumult of the democratic spirit that
characterized local politics.
What needs to be shown, if our conjecture with respect to the existence
of an Upper Canadian Economics is to be credible, is that within the Court
Whig ideology there was a distinctive analytic method and a distinctive
concept of value upon which a distinctive economics was built. That there
was a distinctive analytic method is beyond doubt. In the eighteenth century,
Court Whig ideology had been formed by the outpourings of the Scottish
Enlightenment, the analytic methods of which were those of the empiricists,
Francis Bacon and Isaac Newton. That there was a distinctive concept of
value, distinct, for example, from the subjective value of Austrian
Economics’s selfish economic man, is equally beyond doubt; for the
Enlightenment’s concept of man, rooted in the natural histories of David
Hume, was that of a naturally sociable animal, moved by benevolence to
seek the common good.
The economics built on this dual foundation can be found in the writings
of Adam Smith, whose work, apart from his own theoretical innovations,
which were derived from French Physiocracy with its policy of laissez-
faire, and from a new and partially digested concept of individual liberty,
was rooted in the informational environment of the Enlightenment. The
Enlightenment’s underlying concept of economic development was
inseparable from Smith’s four stages of growth. Except for his rejection
of protection, which was justified on the basis of a theory of capital10 that
John Rae corrected, Smith’s policy preferences were those of the Court
Whigs. He suggested that domestic trade was to be preferred to foreign
trade, because it generated more wealth.11 The sovereign was to be assigned
a supportive role with respect to education.12 Both of these policy stances
were characteristic of nineteenth-century Upper Canadian economists. Smith
assigned to the sovereign a supportive role in the development of commerce,
for example, when he suggested that a tax used to support improvements
in transportation might reduce costs more that it raised them,13 an argument
used by A.T.Gait to justify the Canadian tariff of 1858.
76 A history of Canadian economic thought
There were two parts to Adam Smith. The earlier, theoretical, part of
The Wealth of Nations, the part on exchange, the division of labour,
selfishness and the natural system of liberty, was taken into the hypothetical
abstractions of classical political economy. With those instruments
nineteenth-century British Country Whigs decried the role of government
in economic matters and, basing their arguments on abstract assumptions
about a technologically static society, they proposed laissez-faire. The later,
historical and empirical, part of The Wealth of Nations, the part that fitted
more comfortably into the traditions of the Enlightenment, was taken into
the economics that appears in the works of Robert Gourlay, John Rae and
Isaac Buchanan, all of whom migrated to Upper Canada from Scotland
during the period of the Enlightenment.
The conjecture is the following. In a supportive informational environment,
generated by a remnant of Court Whigs in the United States, a more committed
remnant of Court Whigs, reinforced by fresh infusions from the traditions
of the Scottish Enlightenment, was able to hold a dominant position in Upper
Canada. This fragment of eighteenth-century British society supported its
policies with an economics that was empirical and historical, rather than
theoretical and abstract, and with a notion of man as a benevolent, public-
minded citizen, rather than individualistic and selfish. From its point of view,
classical political economy was a fallacious concoction of hypothetical
abstractions based on the presumption of mathematical regularity in a
technologically and culturally static society. Its view of man as basically selfish
and irremediably corruptible led to the pessimistic and hopeless conclusion
that man could do nothing, socially, to advance civilization. ‘The common
feeling of the free traders is that everything should be left alone…. On the
contrary, everything is improved by art.’14
The conjecture is not that the Canadian nation was formed and directed
on the rational basis of a Court Whig ideology and economics. The conjecture
is that there was an Upper Canadian Economics. The most that‘ can be
said with respect to the founding and directing of the Canadian economy
is that it was, in its institutions and aspirations, consistent with an Upper
Canadian Economics; because other forces were at work, forces that
subsequently carried the nation in another direction altogether. The Canadian
economic historian, Tom Easterbrook liked to repeat a statement referring
to the Fathers of Confederation, ‘They builded better than they knew’; which
is another way of saying, ‘They builded other than they knew’.
If there was an Upper Canadian Economics, it did not survive the arrival
of the professional economists in early twentieth-century Canada (see
chapters 7 and 8). Adam Shortt, yet another Scot trained in Edinburgh,
rejected British, liberal banking theory in the case of Canada, because it
was unsuited to the early stages of economic development; but Shortt’s
The Nationalist School, 1830–90 77
favoured protection, but Britain had already developed its industrial capacity.
In America, the Report concluded, that was not yet the case.
The apparent complete reliance of the Report on the United States case
and United States sources may be misleading. The case made is reminiscent
of John Rae’s more sophisticated position, and just a year earlier a group
of Bostonian protectionists had had Rae’s New Principles published to give
support to their position. Goodwin remarks that it is likely that Rae’s views
had been published in Upper Canada even before that.18
to take off a customs duty of 5 per cent, but you are going to lay on a
confiscatory property tax of 100 per cent,’23
The free trade response to this is, of course, that those who lose their
jobs find alternative employment in an industry in which their country has
a comparative advantage, in which their labour is more efficiently employed,
and in which their incomes are higher than they would have been in a
protected economy. For Buchanan, that is all hypothetical, and he produces
historical examples: India, Portugal, Turkey, Ireland.24 In those countries
the unemployed in consequence of free trade remained unemployed, or
found less remunerative employment.
If a country abandons free trade to take up protection it experiences the
logical opposite to what happens if it moves the other way. ‘If you develop
your producing power so as to produce at home (although at one per cent
dearer) what you used to produce abroad, consumers lose one where
producers gain 100. The nation at large gains 99.’25 Assuming, of course,
for complete symmetry, that the country adopting protection has an
unemployed body of workers to start with.
In this theory, attention is on increasing the general level of production,
and on the level of employment. It is macroeconomic theory in which relative
prices are immediately irrelevant. Hence statements such as the following.
‘Reflect and you will find that the wise policy is not that which prematurely
grasps anyhow at cheapness, but that which develops the producing power
of the country.’26
Buchanan made a further case for protection on the grounds that the
‘home multiplier is greater than the foreign multiplier’. He cited Adam
Smith on this, and J.B.Say. Domestic trade was more advantageous because
what was spent for domestic goods ‘replaces another capital’, which, for
Buchanan, seems to mean that everything spent on domestic goods stayed
in the country in the form of wages, interest, rent and profit.27 This further
case was not crucial to Buchanan. The argument from employment effects
was crucial.
McCulloch received particular vilification as a fallacious political
economist, because it was in McCulloch that Buchanan found a refutation
of his theory of the employment effects of free trade. McCulloch stated
that a shift to foreign sources would not cause unemployment, because
the workers would shift to producing something for export to the foreign
source. Buchanan responded. Not only was McCulloch’s conjecture contrary
to historical experience, but the conjecture was unfounded in theory. The
foreign buyer would be supplied by the home producers who formally
supplied the domestic producers who, in consequence of free trade, were
unemployed and neither supplied nor purchased anything. To prevent
unemployment ‘a new double foreign market’ was necessary.28
The Nationalist School, 1830–90 81
Quebec Conference, McGee was silent. He approved the end result, not
the means.
Alexander Tilloch Gait, whose motivation was doubtfully altruistic, but
whose importance in the process of nation building cannot be denied,54 was
a typical Court Whig. His contribution to the literature on protection was an
extended explanation of the Tariff of 1858, in which he alleged that Adam
Smith’s argument for tax-based public improvement of transportation facilities
was, in fact, the explanation of his Government’s fiscal policy.55 The costs
of transportation would fall more than the tax would raise the price of goods
transported. In the end, the cost of the goods to consumers would be less
than before the tax. So, Gait argued, British manufacturers would have a
better market in Canada for having had a tariff put on their wares.
Macdonald was the quintessential Court Whig, managing the factions
and manipulating the forces of democracy with patronage and programmes
of development to realize the good of the Empire.56 His contribution to the
literature on protection was a remarkable speech in the House of Commons
in which he announced his party’ s National Policy. It was the National
Policy of 1876. Its desideratum was tariff-generated development, with
manufacturing as the leading sector. Railways received no explicit mention,
only a passing implicit remark, and the expectation projected was that
population would move out of agriculture. This is not the agriculture staple,
export-based expansion of the National Policy of 1896. Perhaps Macdonald
was in a drunken stupor and unaware of what he was saying, but his speech
makes quite evident what it was that he was unaware he was saying.
When the opportunity offers, during the course of the present Session, I
shall move ‘That it be resolved, that this House regrets that His Excellency
the Governor General has not been advised to recommend to Parliament a
measure for the re-adjustment of the tariff, which will not only tend to alleviate
the stagnation of business, deplored in the speech from the Throne, but also
afford encouragement and protection to the struggling manufacturers, and
industries as well as the agricultural productions of the country.’…I do not
intend to enter into any long series of remarks on the great theories of free
trade and protection; but one thing is very remarkable—that in all this
discussion, and in all the various discussions which have taken place since
the beginning of the Session, hon. members, or some of them, think that
free-trade is political economy. Political economy in [sic] a great science,
as yet experimental—a science which embraces in connection with the
political system, in the widest terms, all that concerns the material progress
and prosperity of a nation and of all nations. Free-trade is a very subordinate
branch of it, but it is a branch; it has been elevated, and it was raised in the
time of Cobden, owing to the great success of free trade in bread, almost to
86 A history of Canadian economic thought
be a religion, and since his death it almost seems that it has been degraded
into a superstition; but, Sir, free trade, as has been said again and again ad
nauseam, must be reciprocal. Free trade, free intercourse between nations,
means what the word expresses; it does not signify that one nation must
bind the other to that phrase, without regard to disturbing causes, or the
situation of the nation itself, or of foreign nations, or the difference of tariff.
Free trade does not mean that a country, under all circumstances, must open
its doors to all nations, no matter what their customs may be, no matter
what their financial system may be, and without exercising any judgement,
or using any guard, or employing any protection with regard to the country
itself; this is not the opinion of any really great Political Economist. This
view is perhaps held by the minor lights of the Manchester School; but the
great Political Economists have always admitted the existence of disturbing
causes, and have always held that there are other things as important, and
more important to a nation, than the mere aggregation of wealth, and the
supremacy of free trade or protection. The collective interests of a nation
must be considered. They are various, and a nation must stand on its own
ground. Theorists, with regard to free trade, have laboured under a
misapprehension, and have advocated a false science, opposed to the
protection of the industries of a country under any circumstances. Now that
is not the opinion of John Stuart Mill. His celebrated passage, in his book,
which has been so often quoted, I will quote again. It has been repeated by
him in the last edition of his book in the same words that it was in the first.
His position has been attacked; I myself have heard it assailed by political
economists in the Political Economy Club, in England; but this man, superior,
as we have been informed by the hon. member for Welland, to Adam Smith,
lays down in this work, which he leaves as his legacy, the principle that
there are circumstances connected with the manufacturing interests of a
nation which not only excuse, but justify protection…. This is the passage:-
This is the principle laid down by Mill, the leader of the modem school
of political economy in England, a Free-Trader in the best sense of the
word. I say this extract I have now read applies to the circumstances of
Canada. We are a young country, just emerging from the first struggles
with the forest. We have but little realized capital as yet; the manufactures
of the country, with a few small exceptions, having scarcely taken root.
They are lying alongside of a country which has had the advantage pointed
out by Mr. Mill, of having commenced first. The manufactures of the United
States have been going on for a long period of time, and large amounts of
capital have been realized: all these things we have to fight, in addition to
the fact of our industries being in their infancy, and the other disturbing
influences not alluded to by Mr. Mill, which add to the reasons why our
manufactures have the same right to be encouraged that the child has to
look to the parent for guidance until able to walk alone. Mr. Mills [sic],
the Free-Trader, goes much further than many gentlemen in this House
who will vote against the resolution. He does not speak of a revenue tariff
which would afford incidental protection to our manufacturers as being
justifiable, but he lays down the broad principle to encourge native
industries; if they are fitted for the circumstances of the climate, soil and
people of a country, protection ought to be given, and is justified on the
true principles of political economy.
But we hear hon. gentlemen say it is not for the interest of the manufacturers
themselves to have protection. It would create monopolies, and monopolies
bring on apathy and lethargy. If Mr. Mills [sic] thought it was not in the
interest of the manufacturers to protect them, he would not have said so in
the passage I have read. He holds it out for the purpose of encouraging infant
manufacturers in their struggling state, and lays it down that it is not only
excusable and defensible, but justifiable. He thought reasonable protection
would be for the benefit of the manufacturers themselves; but in this country
we are not called upon to break our heads upon theories.
88 A history of Canadian economic thought
believe no nation has ever heretofore, or will ever hereafter, rise to any
eminence in civilization, the arts and sciences, or prosperity of any kind,
unless it honours agriculture and encourages manufactures. To be sure,
we hear from the Finance Minister—a gentleman whose parliamentary
courtesy is only exceeded by his financial ability—that it would have the
effect of driving people from the country into the town. It is not every
man can be or likes to be a farmer, and the man who is unwillingly made
one will always be a failure. There is no life in the world in my estimation
more happy and enviable than a farmer’s under the circumstances in which
he is placed in Canada. It is a pleasant independent life, bringing domestic
happiness and all that the expression implies, but still, all men are not to
be farmers. There is the man of constructive genius, who feels that his
function in life is to become an artisan or mechanic, to enter into a trade,
or some of the other various pursuits. These aspirations of the young men
of the country are not to be checked or discouraged. On the contrary, that
country is the best and will be most prosperous where every man has the
utmost freedom to choose that mode of life, and exercise the abilities God
has given him freely and without limit.
It would be almost pedantic to refer to the those of antiquity, [sic]
but looking at all those which have been civilized in the earliest history,
sacred or profane, you will find that wherever a nation has emerged
from barbarism they have built up great cities. So it is in modern times;
look at the Hansiatic towns, the commercial cities of Italy and the Low
Countries. But it is said, as a reason why we should not encourage
manufactures, that it has a tendency to induce young men to leave the
country and go into the towns. Why, the policy of the Government will
not keep the young men chained as serfs of the soil in our land. Their
policy will not send them into our towns, but into the towns of the United
States, where they encourage all kinds of mechanical pursuits.
We have heard a great deal about this ‘Chinese wall’. As I said a
little while ago, the principle of protection, to a moderate extent is
justifiable, and the true principle of political economy. If you build this
wall it will be like a dam which backs up the water of a stream until it
overflows the country and does a great deal of mischief, but if the dam
is raised so as to allow a moderate part of the water to go over, that water
can be used for fertilizing, manufacturing, and for other good purposes.
Therefore, the proposition I would hold up is simply that the dam should
be raised high enough not to retain the water altogether, for that would
ravage the country instead of doing it a service, but that we allow a certain
amount of the stream to percolate over.…
But I tell the Hon. Finance Minister that he admitted there was such a
thing as a slaughter market, and he had too much reason to believe our
90 A history of Canadian economic thought
market was occasionally used for that purpose. Now, our manufacturers
may be interfered with by this slaughter process from other sources, as
has been argued. When there is a depression of trade in the neighbouring
country, goods must be sold; that happens also in our own country. We
see frequently in times of great depression, similar to the present, when
merchants are becoming insolvent, every kind of goods thrown upon the
market, and slaughtered, so to speak, to the great injury of solvent traders.
That cannot be avoided, and it is right that it has the compensatory advantage
of giving cheap goods to the purchasers. But it gives no real compensating
advantage for the permanent real injury that is done to the trade of the
country by the ruin of those merchants, and by the want of confidence
thus induced by the spread of ruin, for the actual insolvent whose goods
are slaughtered will make other insolvents. But while we cannot avoid
that, and it is greatly to be regretted that we cannot do so, we can, to a
great extent, regulate our trade so as to protect our dealers against the
depression which exists in the neighbouring country. When it happens
that there is a forced sale of stocks in that country, in consequence of which
the honest trader is compelled either to shut up his shop, or enter into
competition with insolvent estates, it is possible so to regulate the tariff
as to protect our own people.
But besides the evil of making this country a slaughter market, there
is another very serious one of sending goods into this country for the
purpose of bringing down prices here, injuring our manufacturers, and
driving them out of the market and afterwards getting control of the
market. It is said that such a thing never happened. Why, do we not see
it happening in our own country? Have we not seen, for instance, one
steamboat line trying to drive off another steamboat line for the sake of
getting a monopoly? Did we not see the Syracuse salt manufacturers
sending in their salt some years ago for the avowed purpose of destroying
our infant salt works? Do we not see at this moment the ruinous
competition of two cables from Europe to Canada? Do we not see the
Anglo-American Company trying to sweep out the Direct? Do we not
know that in England railways are run against each other at ruinous rates
for the purpose of getting control of trade? And then there are
combinations of workmen all over the world together with associations
of employers of labour. We have also the Iron Masters Association of
England, and the Iron Masters Association at Pittsburgh in the United
States, both of which are as one man: and therefore it is not strange that
persons in the United States think it to their interest to crowd our market
with their goods for the purposes of destroying our infant manufactures.
If this is permitted to go on, the confidence of our manufacturers is
destroyed, and their capital lost, it may be years and years before that
The Nationalist School, 1830–90 91
confidence can be restored and that capital replaced. In the mean time,
we shall have come to take the goods of the foreign manufacturers at
their prices….57
Neither the economics of the Canadian economy, nor the economic analysis
growing out of the economics of the Canadian economy, nor the policy
growing out of that analysis, in the middle years of the nineteenth century,
was substantially dependent upon, explanatory of, or directed towards
agricultural staple-based dependent growth.
6 Monetary theory and policy,
1812–1914
92
Monetary theory and policy, 1812–1914 93
THE HISTORY
The process by which Canada slowly achieved monetary, fiscal, and finally
commerical independence within the Empire was accompanied by a gradual
assertion of its natural internal fractionation. At the time of the rebellions
of 1837 Canada was six separate colonies. The union of Upper and Lower
Canada following the Durham Report was as complete as union would be
in Canada. It was unworkable. Thereafter a process of disintegration set
in. When Confederation and trans-continental expansion occurred between
1867 and 1873, four additional colonies and the Northwest Territories were
tied into this process of disintegration. In the meantime responsible
government in internal matters was achieved first in Nova Scotia, then in
Canada in 1848. Autonomy in monetary matters was achieved in 1853 when
the British North American currency system was unified by a universal,
official adoption of the dollar as the unit of measurement.6 Fiscal autonomy
was achieved with the adoption of the tariff of 1858.7 Dominion status came
with Confederation in 1867. Full autonomy came with the Statute of
Westminster in 1931. Between 1867 and 1931 the disintegrating trend
towards provincial autonomy clearly established itself.
These political events were related to a number of technological and
economic factors. At the beginning of the period the principal means of
transportation were the natural waterways and some less than satisfactory
roads. Between 1810 and 1850, the St. Lawrence River was supplemented
with canals. Between 1850 and 1866, the system of canals was paralleled
by a system of railways running from Quebec City to Windsor and Sarnia
on the United States border. By 1876 the railway system had reached Halifax
on the Atlantic coast, by 1882, Vancouver on the Pacific coast. During this
period Canada may have emerged from primitive reliance on agriculture
and primary product exports; but that is what is in question. Manufacturing,
as a significant separate activity with an entailed labour market, appeared
in Canada between 1850 and 1880.8 As late as 1850, perhaps as late as
1870, there were hopes in Nova Scotia that deposits of coal and the proximity
of iron ore would make the Maritimes the industrial core of Canada. The
Monetary theory and policy, 1812–1914 95
pull of continental markets and the availability of United States coal and
ore frustrated these hopes. An industrial corridor grew up along the lower
St. Lawrence Drainage Basin from Montreal to Hamilton.
The central question in all of this is whether or not the emergence of
manufacturing delivered Canada, as a whole, including its far-flung western
appendages, from substantial dependence on primary product exports. Was
there a point in time, or a period, when a ‘take-off’ into self-sustaining
growth occurred? Ken Buckley has suggested that the end of substantial
reliance on primary product exports came with the termination of the fur
trade out of Montreal in 1821.9 Walter Rostow suggested that the ‘take-off
occurred about 1896, but even this later date has not been generally
accepted.10 If ‘take-off did not occur, then, that it did not occur is a matter
of considerable consequence in our understanding the debate over monetary
theory and institutions in the middle years of the nineteenth century.
The question may be reformulated. To what extent was industrial
development in Canada simply part of industrial development in the Atlantic
basin, and so an entirely dependent phenomenon? According to Watkins,
Levitt and Naylor it was, or it became, an essentially dependent phenomenon.11
If Naylor’s view is the correct view, the critical moment came with the failure
of the National Currency League in its move to have a national fiat currency
included with the tariff in the National Policy of 1876.12 At that moment,
according to Naylor, Canada succumbed to the reactionary tendencies of a
financial system biased against independent development and growth.
Naylor’s view has been given some support in a footnote controversy
involving H.A.Innis, J.H.Dales and E.P.Neufeld. In that controversy attention
focused on the persistent income differential that has existed between Canada
and the United States. Although he did not put the question that way, Naylor
attributed the differential to stuck-in-the-commercial-stage Canadian
financial institutions. John Dales attributed it to the effects of the protective
tariff, and, in a long footnote he took H.A.Innis to task for suggesting that
the tariff was not a protective, but a revenue device to facilitate development
programmes.13 In a shorter footnote, Ed Neufeld rejected Dales’s explanation
of the differential, suggesting instead, that it was a consequence of Canada’s
‘conservative’ banking institutions.14 This is not to say that Tom Naylor
and Ed Neufeld saw ‘eye to eye’ on the question.
What was established in this three- or four-way discussion was the
potential importance of the evolution of monetary institutions for the
economics of Canada; and so, also, the importance of the monetary theories
underlying those institutions. What the character of those institutions was,
what their theoretical underpinnings were, and why they were what they
were is what has to be shown in this chapter. That the rate and character of
Canadian economic development can be understood only in the light of
96 A history of Canadian economic thought
THE INSTITUTIONS
As important as it is to our story, we will leave it to others to account for
the emergence of the gold standard, and of central banking in Britain and
the United States in the nineteenth century.15 We proceed to a summary of
events insofar as they affected Canada.
The nineteenth-century currency controversy in Canada, Britain and the
United States began with events surrounding the War of 1812. There had been
attempts to set up banks in Canada prior to the War. Probably they are best
explained as John Rae explained them (see chapter 4). During the War, by
way of the British Army bills used to purchase supplies, Canada felt the effects
of an increase in paper money in Britain. Prices rose in wartime prosperity.
After the War the Army Bills ceased to circulate and prices fell as Britain returned
to gold standard convertibility under Peel’s Bank Act of 1819. From then until
the last quarter of the century, in Canada, as in Britain and in the United States,
there was constant controversy over the payments system. There were three
questions to be answered. How centralized (monopolized) should the system
be? How flexible (variable in quantity) should the currency be? Should the
currency be convertible into gold on demand? Those in favour of decentralization
were not identical to those in favour of a highly flexible (elastic) issue. In fact,
any one of the four positions possible on the basis of combining degree of
flexibility with degree of centralization could be found in combination with
either a fiat or a fully backed currency proposal.
The lines of the debate in Canada were set by Governor-General Lord
Sydenham very shortly after his arrival in Canada. The rebellions of 1837
had occurred during the monetary crisis of the same year. In both of the
Canadas, banking monopolies had been on the rebels’ list of alleged
injustices. Following the Durham Report, Sydenham proposed to reform
the banking system by setting up a provincial bank of issue based on the
principles of the English Currency School. Sydenham was, in fact, George
Poulet Thompson, and had been responsible for the substance of what was
to be the British Bank Act of 1844. His proposal was not accepted, but, in
certain quarters, his theories were, and there were further attempts to establish
a public monopoly of currency issue in 1860, 1866, 1871 and 1881. After
that the idea was abandoned, not to be revived until 1933. In 1841 Sydenham
was supported, though not wholeheartedly, by Francis Hincks, opposed
by a reform faction led by Isaac Buchanan, and defeated by the political
power of the established banks.
Monetary theory and policy, 1812–1914 97
especially, the interests of Toronto could not tolerate the raising of the Bank
of Montreal to the position of a central bank. Established regionalism in
the existing banking system triumphed over the national banking system
proposed by the Government and the Bank of Montreal.18
It may be that changing the base of the currency, and adding a central
bank and a bottom tier of local, unit banks, which was what was being proposed,
would have been more appropriate for an economy about to develop its
manufacturing sector. But it is not correct to say that the new scheme was
rejected because established commercial interests did not want the existing,
dependent, primary product exporting economy disrupted, as Naylor has
said. It was regionalism, not commercialism, that defeated the national banking
proposal; and, in any case, it has not been established that the existing economy
was substantially dependent on primary product exports.
There was one more attempt to reconstruct the banking system. The
losers in 1871 were those who wanted a fractionally based, centralized
government issue. Those who wanted a national fiat currency took their
turn at the time of the Bank Act of 1881. In the years building up to the
mandating of the National Policy in 1877, Buchanan’s irredeemable currency
faction, now led by William Wallace, formed the Financial Reform League
of Canada. They were a significant minority within the Conservative Party
and they were able to have a national currency added to the proposed national
tariff to form the National Policy platform on which the Conservatives ran
in the election of 1887.19 When the time came for the Bank Act revision,
however, the national currency group received only a gesture in the form
of a limited issue of small-denomination Dominion notes. Two factors were
paramount in this final failure. The first was specific to Canada. The
commercial banks, now including the Bank of Montreal, through an
organization that was soon to become the Canadian Bankers’ Association,
lobbied hard against the change. The second was international. The United
States, the last holdout against the gold standard, returned to convertibility
in the late 1870s. The whole world was on gold and stayed that way until
the First World War, when controversy over the payments system again
flared up around institutional change.
THE THEORY
There seem to have been six polar positions in the widespread debates over
money and banking in the middle years of the nineteenth century:20
centralization and decentralization, government regulation and market
regulation, currency as money and bank credit as money. In England specific
combinations of these polar positions appeared in the Currency, the Banking
and the Birmingham Schools. United States preference for a decentralized,
Monetary theory and policy, 1812–1914 99
We may begin with Robert Gourlay’s remarks during the economic slump
that followed Peel’s return to the gold standard ending the paper inflation
of the War of 1812.
I was of the opinion at the time…that there was a fatal defect…. The
bank loans to the commercial classes, to the extent that they were based
on circulation, would necessarily [have had] to be withdrawn with serious
loss and a commercial crisis would have been the inevitable result, this
might have been guarded against, by permitting the existing banks to
retain their issue to the extent of their average issue, a course adopted
by Sir Robert Peel a few years later.27
comforting and useful to Buchanan, but he did not have Buchanan’s concept
of money. Carey’s long disquisition into money and banking as ‘instruments
of association’ was an argument in favour of free banking in which it was
shown, on historical grounds, that the established monetary institutions of
England and the United States had not worked as well as other institutions
might have worked. Here, as elsewhere in Carey’s work, one looks hard to
find any theoretical analysis.29 Buchanan’s theories did not come from H.C.
Carey. In fact, Buchanan’s economics was well formed long before Carey’s
work was published.
Bernard Byles’s little book, Sophisms of Free Trade and Popular Political
Economy Examined,30 is a more promising ground for clues to the roots of
Buchanan’s economics. It has the arguments and the mode of argumentation
that characterize Buchanan’s pamphlets. Byles treats ‘the tariff question’
and ‘the money question’ as elements of a larger question concerning the
fundamental error of the free trade proponents who, allegedly, passed
themselves off as the guardians of reason and science in what was merely
the elaboration of a preferred system of social organization. Bernard Byles
was not the source of Buchanan’s economics, which were well formed in
1837, some twelve years before Byles’s book was published, but he points
us in the right direction.
Bernard Byles and Jonathan Duncan were members of a recognizable
school in British economics. Both were respectable citizens of comfortable
means. Both earned a place in Smith’s Dictionary of National Biography31
as, among other things, currency reformers. Judging by the theoretical
positions attributed to or expressed by them, both were members of the
Birmingham School.32
Led by the Birmingham banker, Thomas Attwood, the Birmingham
School first came into existence immediately after the War of 1812 as part
of the Birmingham Political Union. Attwood was a proponent of the quantity
of money theory of prices, on the basis of which he argued that the legal
monetization of gold would destabilize prices. With the monetization of
gold the supply of gold and speculation on changes in the purchasing power
of gold would not be isolated from the currency and the general level of
prices. The flaw in the free trade system was not that it was for free trade,
but that it failed to apply the free trade principle to every commodity.
Monetization of gold would frustrate market forces in the determination
of the price of gold. Indeed, he asserted, if the price of gold were as free to
vary as the price of any other commodity there would be no need for tariffs.
Hawtrey has given some examples of Attwood’s theorizing.
The laws which make food dear, and those which, by making money
scarce, make labour cheap, must be abolished.33
Monetary theory and policy, 1812–1914 103
There is sense to what Attwood was attempting to say. If all prices rose,
except the price of gold, it being legally fixed, external demand for goods
would fall off and external demand for gold would rise. Commodity prices
would fall and unemployment would be the result. Attwood saw the downside
of the gold standard mechanism for balancing international trade. So, he
concluded, the ‘employment of our own people’, as opposed to the
employment of the people of countries with which England traded, could
be achieved by the demonetization of gold. There should be, he said, laissez-
faire in the price of gold. A commission should be established to issue
currency in sufficient quantity to keep prices steady and employment at
capacity. The quantity of money should be regulated to keep the level of
wages constant.
If gold was in demand, and goods were not, then the price of labour
would be down in relation to the price of gold. So if gold was ‘dear’, labour
would be ‘cheap’, and the doctrine came to be expressed in terms of the
‘money power’ and the ‘labour power’ of England.
The position taken by the Financial Reform League of the late 1870s in
Canada was that of the Birmingham School. The Birmingham School had
grown out of the consequences of Peel’s Act of 1819. Buchanan’s recurring
reference to that Act as the beginning of monetary problems is just one of
many indications that Buchanan should be classified as a member of the
School. Some of those associated with him in the Financial Reform League,
particularly G.D.Griffin35 and Walter Arnold36 held views that were quite
consistent with Attwood’s, and, incidentally, Milton Friedman’s. The only
thing that separated these alleged ‘inflationists’ from the doctrines of modern
Monetarism was the technical means that were to be used in fixing the
quantity of money once the gold standard had been abandoned. But we
must come to the connection between the Birmingham School, the Financial
Reform League and Monetarism more slowly.
Consider the position taken by Buchanan on the occasion of Galt’s second
(1866) attempt to establish the provincial bank of issue,37 a position which
he claimed to have held from the time of the Rebellion in 1837. He accused
Gait of being a Political Economist, and of attempting to re-enact Peel’s
Act of 1819.38 The problem with the Political Economists, he wrote, was
their application of the law of supply and demand to everything but the
price of gold.39 The English system, he alleged, might apply in countries
in which trade preceded banking, but, in countries such as Scotland and
Canada banking had to precede trade. International trade was important,
but it had to be reciprocal trade in goods. The tariff would not be necessary
104 A history of Canadian economic thought
to ensure this if there were free trade in gold, that is, if the price of gold
were freed by the institution of a fiat paper currency.
In the Relations Buchanan’s doctrine on money begins with a statement
of the Birmingham School position.
The money power of England vs. the labour power…dear money and
cheap prices and wages [are] convertible terms.40
He repeats, or his editor, Morgan, repeats the statement that ‘the money
question and the employment question are the same’. The style is Bernard
Byles. The economics is the economics of the Birmingham School.
the circulation is based upon and in proportion to GOLD, the rich man’s
property, instead of upon labour, the poor man’s property…that this
basis is therefore a thing that can be sent out of the country; instead, in
a word, of money being the mere handmaiden of industry. The
superstructure can never be continuously large when its basis (the golden
basis of our inverted pyramid!) is allowed to become small….41
As regards the limit of the issue of a paper currency, due regard should be
Monetary theory and policy, 1812–1914 105
had to the trade and business habits of a people, and an estimate should
be made of the ratio that the amount of the currency should bear to
population. This estimate once made, that ratio should always be observed;
for as population increases business will also increase, and to keep up the
relation between money and capital, an enlargement of the currency should
take place. I believe no better plan can be adopted. By this means the
currency would be steady in amount, and fluctuations in its value would
depend only on a change in the ratio commodities bore to it. In a normal
condition of things, this would be continually increasing and the movement
of the currency would be towards a gradual increase in value; it would
not be subject to those great rises and falls that now disconcert everyone.
Opdyke in his Political Economy, published in 1851, and from statistics
previous to 1846, says: ‘The natural ratio of money, when expressed in
dollars, to population in the United States is as 15 to 1.’ That country
may be considered as a fair standard by which to estimate the quantity of
money required by this country; taking this ratio and our population to
be 1,750,000, the Government might issue $41,250,000 of paper money
and small change, and by this much reduce the public debt.44
Adherents of the Banking School found such views abhorrent. In their opinion
the quantity of money should have been variable, depending on business
conditions. The volume of credit was not something that could be determined
once and for all. When confronted with a similar, non-Banking School assertion
in Irving Fisher’s proposed compensated dollar, Adam Shortt lumped the
views of the 1850s and of the second decade of the twentieth century into
one mistake. The idea that a managed currency could stabilize prices was an
illusion in which people ‘comforted themselves with theories of cause and
effect which [could] be traced with mathematical accuracy, and with remedies
that could be applied with mathematical precision’.45
Before leaving this general treatment of monetary thought in Canada
West it is necessary to emphasize our admission that we have had to over-
simplify in order to keep the story from falling into confusion. In fact,
positions and factions were constantly changing, and never perfectly in
line with the categories into which they have been put. For example, it was
ironic that the final answer to the problems raised by the Birmingham School
was as mathematical as the theories of the Political Economists whom they
ridiculed for being mathematical in their approach to human behaviour.
Indeed, many members of the Birmingham School would not have accepted
Walter Arnold’s answer. They were generally biased in favour of labour
and of an increasing ratio of money to goods, They were inflationists.
Hawtrey attributed their demise as a recognizable faction to the rise in prices
following the California Gold Rush of 1849. It eliminated the problem on
106 A history of Canadian economic thought
which, after the departure of Attwood, they had chosen to focus their
attention.
The same fluidity characterized American positions. Bray Hammond found
that the attitude of the United States frontier states towards banking changed
with the advent of capitalized, commercial farming. In the early half of the
nineteenth century the frontier was conservative. The inflationist bias of
populism did not appear until the second half of the century.46 In Canada
support for currency reform, that is for a national fiat currency, changed after
the opening of the Prairies. The idea that radical currency reform moved
west with an agricultural frontier47 is insupportable. Currency reform in the
middle years of the nineteenth century in Canada was an urban, business-
oriented movement. Adam Shortt associated the National Currency League
with an ‘Agricultural Banking Scheme’,48 but he mentioned no farmers or
farmers’ organizations in support of the League, and contemporary accounts
leave the impression that there were none.49 Shortt’s account, like those of
so many others after the opening of the West, was shaped by contemporary
problems, which he read into the more distant past. In any case, Shortt attempted
to belittle the Birmingham position by associating it with late-nineteenth-
century United States Populism. His opinions of the ‘soft money’ faction
were hostile, and so, not to be trusted. Bray Hammond was right. It was not
the sector of the economy that inspired fresh approaches to monetary
institutions, but the structure of debt, in whatever sector.
The Birmingham School died out in England. In Canada it was kept
alive by the Financial Reform League and the agrarian reformers of the
new West. William Wallace was the principal spokesman of the movement
from the founding of the Financial Reform League until the early twentieth
century, when leadership passed to George Beavington and William Irvine
of the United Farmers of Alberta, and eventually to William Aberhart of
the Social Credit Crusade. Perhaps Major Douglas’s ideas, originating as
they did in England, also had their roots in the Birmingham School. If so,
then the adoption of some of his terminology by the reformers of western
Canada in the 1920s was a reunification of two streams of monetary thought
that had separated about fifty years earlier.
Having dealt with the historical, institutional and intellectual context
of nineteenth-century Canadian monetary and banking theory, and with
the major schools of thought involved, we can now turn to treatment of
some of the details.
that the expansiveness of money based on gold was ‘not in equal ratio to
the expansiveness of the industry of the world’. If the monetary system
was to be adequate, he said, industry itself, that is, the productivity of labour,
would have to be accepted as the basis of ‘natural credit’. He pointed out
that foreign money lenders had shown sufficient confidence in the
productivity of Canadian labour. Could not the Canadian government show
the same confidence? Why pay interest to foreign money lenders when
the Canadian government could itself issue money to the labour, equipment
and resources of the nation, thus eliminating depressions and permitting
the nation to grow on its own capabilities. It would eliminate the need for
the tariff, because ‘Money which is not exportable, which cannot be sent
to buy foreign goods, is the truest and best system of protection’.59
Of all the monetary views in Canada in the nineteenth century, that of
the national fiat currency faction was at once the most persistently put forward
and the least successful in the policy-making process. The Banking School
faction, having the reactionary force of Canadian regionalism on its side,
was the political winner. Thomas Naylor, making no reference to the
theoretical roots of nineteenth-century Canadian institutions and policies,
flattered the chartered banks when he suggested that by sheer political power
they prevented reform in order to preserve an alleged dependent, commercial
character of the economy. In fact, their position was respectably consistent
with that of the Banking School. Their political strength was not theirs,
but that of the natural fractionation of the Canadian economy. Apart from
these distinctively Canadian considerations, the Currency School and the
Birmingham School positions failed to carry the day in Canada for the same
reasons that they failed everywhere in the industrialized world between
1880 and 1930.
The view that nineteenth-century Canadian monetary history is an
account of the success of a reactionary, staple-export-oriented set of financial
institutions ignores both the real economics and the informational
environment in which the alleged reactionary success took place.
7 Some intrusions of history,
1890–1930
NEOCLASSICAL ECONOMICS
In our description of the nature and evolution of the neoclassical paradigm
we will be relying on certain sources. We will be disciplined not by the
content of our sources,1 however, but by the nature and development of
Canadian economic thought. The period covered will stretch from 1870
to 1940, to allow us to say what needs to be said to support our treatment
of Canadian thought to the end of the Second World War. A further statement
109
110 A history of Canadian economic thought
HISTORICAL ECONOMICS
The German Historical School, in protest against the hypothetical abstractions
and institutional biases of classical Political Economy, undertook inductive
formulation of scientific laws of economic development. Society was to be
described in terms of concepts similar to the stages of development posited
by Adam Smith, that is to say, in terms of different ‘styles’ of behaviour or
sets of values and institutions called ‘ideal types’.5 In its United States
incarnation, the ‘old Institutionalism‘, historical economics attempted to
abandon all abstraction in favour of description of the economic effects of
technical and institutional constraints. Thorstein Veblen assigned no scientific
importance to indeterminate choice, treating everything in human behaviour
as externally determined or mindlessly instinctive. A less radical attempt to
reconstruct economics historically had appeared in England in the work of
Cliff Leslie, J.K.Ingram and W.J. Ashley. First-generation Canadian
professional economists, Adam Shortt and James Mavor were directly
112 A history of Canadian economic thought
POSITIVE LIBERALISM
A third important intellectual influence in Canadian economic thought
between 1890 and 1930 was positive liberalism. Since we are about to define
what we are to understand by this term we can use the value-laden term
‘socialism’ to designate what we mean by it. The socialism with which we
are concerned was not Marxian socialism, opinions expressed at the time
of the Winnipeg General Strike in 1919 notwithstanding. Marxian analysis
did not appear as a significant element in Canadian economic thought until
the 1930s, and had little academic respectability until the advent of the
New Political Economy in the 1970s; but this will be dealt with elsewhere.
The socialism with which we are now concerned is the positive liberalism
that was recognized as socialism by Canadian economists before the 1930s.
In Canada, as in the United States, socialist aspirations were rooted in
neoclassical, not Marxian analysis. R.T.Ely’s definition of socialism6 was
consistent with O.D.Skelton’s7 neoclassical critique.
Skelton defined socialism as a dozen indictments of the then existing
social system. They fell into three categories. In the first category were
criticisms rooted in the moral thrust of conscientious people hoping to
improve human conditions in their immediate environment. These criticisms
focused on such undesirables as poverty, slums, unhealthy working
conditions, uncertain employment and income, and the disintegration of
family life that accompanied these things. The second category of criticisms
centred on what the New Institutionalists now call ‘market failures’:
inefficiencies associated with common property, excess capacity in
oligopolistic and competitive markets, non-informative advertising, the
existence of fraud, theft and misinformation at every level of industrial
and financial activity (moral hazard, asymmetric information and
transactions costs), and the absence of a property right in labour. The third
category consisted of a single indictment of the system, pervasive
misinformed and mismatched decisions that induced recurring crises and
bouts of unemployment. Positive liberalism was the ideology that held that
social intervention should be used to remove these problems from the
economic system. When it appeared in late-nineteenth-century Canada it
was compounded with imperialism, international laissez-faire, and United
States yellow journalism. We will have to trace its beginnings in free trade
doctrines of the middle years of the nineteenth century.
Some intrusions of history, 1890–1930 113
IMPERIALISM
Penelope Hartland has pointed out that the Economist in London, as late
as 1885, was advising investors to stay away from the Canadian Pacific
Railway because it had poor commercial prospects.13
The Canadian Pacific Railway, and western expansion in general, were
politically motivated. This is not to deny the existence of a faction that thought
it could migrate to the West and do what had been done in agriculture in
Ontario. It is an assertion that Confederation and the expansion of Canada
was part of Imperial policy first, and secondarily part of Canadian policy.
At the time of Confederation there were many in England who simply wanted
to get rid of the colonies, but other opinions were on the rise. By 1870 it
Some intrusions of history, 1890–1930 115
to get the railway built, and against the tariff that favoured the manufacturing
‘East’. Ontario, complaining about being the ‘milch cow of Confederation’,
pursued provincial autonomy and provincial territorial expansion, successfully
contesting the jurisdiction of the central government over resources,
hydroelectric development, and over anything that could conceivably come
under its jurisdiction over property and civil rights. By 1910, provinces in
every region were undertaking provincial ‘national policies’ based on resource
exports to the United States. What began as a national policy of independent
growth in 1876, was overlaid with a policy of dependent growth based on a
wheat staple export, and undercut by a series of regionally oriented policies
of dependent growth based on the export of minerals and forest products.
This was the economics of Canada when, between 1890 and 1930, the natural
fractionation of the country asserted itself against centralization associated
with defensive imperial expansion.
As if to get every conceivable disruption over with at once, the period
was also marked by the emergence of an economics profession. The
professionals ignored, forgot or depreciated the economics that had
preceded them in their own country, and started out on a new course to
discover or construct the economics of Canada. The result was a major
cleavage in Canadian economic thought about 1900. Prior to the turn of
the century the old style of economics predominated. Afterwards it took
a very second place to the work of the professionals, even though, in the
beginning, the professionals had little to offer. To recount the last efforts
in the old style it will be necessary to reach back into the middle years of
the nineteenth century to pick up the thread of support for free trade,
because, in the years of Imperial reconsolidation, free trade within the
Empire, Imperial preference, became fashionable. Recounting the tedious
disorder of the first years of the profession can be left for last.
John Young, a business agent who had frequently travelled in the Midwest,
took the opposite view. Canada could survive and prosper with free trade.
Young gathered a core of like-minded Montrealers into a Free Trade
Association that, for two years, filled The Canadian Economist with free
trade statements by Smith, McCulloch, Malthus, Lauderdale, Say, Storch,
Torrens, Sismondi, Garnier, Whatley and Bastiat.17 As a practical matter,
Young supplemented his appeal with secondary appeals for government
support in the building of canals, harbour facilities and bridges. He was
elected to the legislature and appointed Minister of Public Works during
the prosperous years of the 1850s.
Towards the end of the 1850s the cause of free trade was taken up by a
precursor of the professionals, a Professor of Natural History at the University
of Toronto, the Reverend William Hincks, brother of Sir Francis Hincks.
Having accepted Political Economy as ‘scientific’, and the competitive
market as the best instrument for economic progress, Hincks attacked
protection as a force for monopolization of markets and a generator of
inefficiency.18 There was nothing original about Hincks’s theories. He
understood the arguments of the classical Political Economists and presented
them as making perfect sense in a trading nation such as Canada, which,
of course, they did.
The real future of free trade in nineteenth-century Canadian thought
was not to be in scientific analysis, but in political debate. In the early 1860s
the cause was taken up by the editor of the Toronto Globe, George Brown,
a towering figure in the Reform Party. His arguments were not elegant, but
nonetheless made sense. The tariff was just one more way in which the
privileged used their position to their own advantage at the expense of the
Canadian farmer. Like so many other government interventions, the tariff
was an instrument of corruption. The election of 1873, in which the Liberals
defeated the Conservatives, was won on a platform of free trade and reduced
government intervention in economic matters.
Throughout the half century following the Galt-Caley tariffs of 1857–8,
reciprocal, Canada-United States free trade in natural products was a live
issue. In the late 1880s, two cunning, would-be exporters of Canadian
resources, Erastus Wyman and S.J.Ritchie, in concert with Canada’s celebrated
Manchester School journalist, Goldwin Smith,19 toured Ontario and Quebec
speaking in favour of ‘unrestricted reciprocity’ with the United States. They
convinced those attending the rebellious Interprovincial Conference of 1887
to adopt an ‘unrestricted reciprocity’ resolution, and they precipitated an
election over free trade in 1891. The Liberals and free trade lost.
The argument for free trade in the last decades of the nineteenth century
was an argument for equity, not efficiency. It was part of the ill-formed but
passionately held intellectual foundations of the new positive liberalism.
118 A history of Canadian economic thought
Henry George’s single tax on the rent of land had many supporters in
Canada, especially in the newly settled west where it was thought that the
tax would fall on land speculators. Its First and most articulate advocate,
however, was a central Canadian school teacher, W.A.Douglass.20 His core
idea was that value depends on scarcity, not abundance, and that this was
the source of a conflict between productivity and value. The larger the output,
the lower the value per unit. Given the right elasticity of demand (a term
not used by Douglass), rent, that is scarcity value, could be increased by a
deliberate reduction of output. Further, any value created by increased effort
or productivity would be drained into the rent earned by those whose products
were not increasing as quickly. Apparently there were contradictions in
the system. In Douglass’s view, the protective tariff was just a device to
create such scarcity value. Douglass’s work was one of the sources of the
increasingly widespread idea in Canada that the tariff, monopoly and other
instruments to transfer wealth to the privileged were all consequences of a
malfunctioning and unjust system.
The spirit of positive liberal reform and the kind of economics underlying
the free trade movement in those years was best represented in the works of
Edward Porritt.21 Porritt lionized Richard Cartwright of the Liberal Party,
calling him the Cobden of Canada, and the Political Economist of Canada,
because Cartwright had defected from the Conservative Party on the tariff
issue, and because he was denied the Ministry of Finance under Prime Minister
Laurier for refusing to compromise on the issue. Speaking for free trade at
the Liberal Convention of 1893, Cartwright attacked the tariff saying
We are practically face to face with a vast and well organized conspiracy,
with a conspiracy that controls the press in this country, which controls
a very large part of the active wealth of the country…whose motto is
robbery and whose arms are force and bribery.22
Wealth23 had some influence among the professionals who were by this
time a rapidly growing force in the informational environment. We need
only consider some chapter headings.
economist, that is, someone who processes economic theory and facts for
a financial return. The professional economist is distinguished from
professionals in other social sciences by the unquestioned primacy with
which he or she treats considerations of objective efficiency. Non-monetary
factors, even non-economic factors such as political and sociological factors
may be the subject of discourse in economics, but the economist’s agenda,
overt or hidden, bears on objective efficiency in human behaviour. The
economics profession is the set of professional economists self-consciously
interacting with one another as professional economists.
The economics profession appeared in the universities between 1870
and 1930.
Between 1930 and 1950 the profession expanded its field of employment
into the public service. After 1950 it expanded into a variety of private sector
institutions. Of course there were forerunners, and exceptional individuals
and periods.
The economics profession appeared in Canada at the same time that it
appeared in Britain and the United States.28 Its members in Canada, it seems,
were distinguished by their reluctance to accept economic theory as
scientific.29 Since the empirical foundation of economics was still in doubt
as late as 1980,30 their reluctance may be considered prudent, rather than
backward.
The economics profession in Canada was not a Canadian profession.
Canada, as a society, was ill-defined in 1900. The Prairie Provinces, apart
from a postage stamp covering Winnipeg, did not exist. Quebec and Ontario
were separated by language and culture. The Maritimes and British Columbia
were separated from the rest by intellectually untraversed geographic and
historical distance. There was no Canadian academic community. There
was a North American academic community, and an English-speaking North
Atlantic community, and a French academic community, to which the
Canadians belonged. For instance, A.W.Flux, one of the five ‘Canadian’
economists to be given space in the New Palgrave Dictionary, taught for
nine years at McGill University in Montreal. During his stay he wrote a
widely accepted text on neoclassical economics, and he contributed regularly
to the Journal of the Canadian Bankers’ Association on the nature of
Some intrusions of history, 1890–1930 121
them for that. The mixing of influences was evident in those who wrote
the texts produced in Canada between 1912 and 1928. James Mavor’s
Applied Economics36 was a melange of value theory and history. It was
marked by a strong bias against government interference in the economy.
S.A.Cudmore’s Economics for Canadian Students37 was a lesson book for
Shaw’s correspondence courses. R.E.Freeman’s Economics for Canadians38
made more use of neoclassical theory and used diagrams to explain the
principles of economics and equilibrium prices. Freeman’s work was biased
towards a ‘social point of view’ and ‘government involvement’ in the
economy. D.A.McGibbon, the only American-trained economist to produce
a text, accomplished his task without the word ‘utility’. The character of
economics in Canada, as reflected in these works has to be modified by W.
A.Mackintosh’s remark that most upper-level students were taught from
Taussig’s Principles.39
It is unfair to judge Canadian economic thought on the basis of its
published residue in a period in which publication was not as desperately
sought as it later was to be. The written evidence does support the idea that
the Canadians shied away from the theoretical economics typical of Harvard,
and embraced history, which was typical of Chicago. Still, in commenting
on the period W.A.Mackintosh, who was one of the important players, made
the following remarks.
In the early part of your period [1912–28] Chicago was a rather inferior
place for economics. Veblen, who was stimulating rather than formative
in his influence, and Davenport had left. Chester Wright was almost
the only continuing link. Field was a competent statistician but
L.C.Marshall was a busy second-rater. In this period, Chicago drew
Canadian students primarily because of its summer quarter system,
particularly convenient for young Canadian academics who could
frequently get in two quarters a year. In the latter part of your period,
the story was entirely different. J. M.Clark, Viner and Frank Knight gave
it a new and great vitality while the Harvard group grew old despite the
recruitment of Allyn Young.
He had very little interest in Banking and his book on the Dominion
Bank was done for a fee.
There was some ‘off the cuff sniping at neoclassical economics. Skelton
allowed that D.A.McGibbon’s efforts had risen ‘above the level of dry
bones and dogmatic formulas’ but not by much, and he questioned the
wisdom of presenting young students with simplified versions of such
‘highly controverted material’.41 At one point H.A.Innis referred to
neoclassical theory as ‘a new form of exploitation with dangerous
consequences’.42 Stephen Leacock attempted a Veblenesque critique of
neoclassical value theory, which, despite its lapses into first-class humour,
was not pointless.43
When the time came, economists in Canada took to theory as keenly as
did any other subset of the profession. In the 1890–1930 period, however,
they constructed an account of the underlying, long-run factors in Canadian
economic development. The necessary first step was to build the foundation;
so the first and second generations of the profession in Canada had an
historical orientation. The third generation, raised in the depression of the
1930s, turned to Keynesian and neo-Keynesian macroeconomic theory.
The first, native-born, professional economist in Canada, Adam Shortt,
documented and interpreted the evolution of currency and banking in
Canada from the earliest period to his own time. Throughout, he justified
the view of the Banking School against the views of the Birmingham
and Currency Schools. He demonstrated, contrary to received opinion,
that Canadian banking institutions had been explicitly modelled on the
Bank of the United States, and he was first to depict Canadian development
as being shaped by reliance on a few primary product exports. H.A.Innis
considered Shortt to be ‘the founder of Canadian economies’, and set
124 A history of Canadian economic thought
out to build on the foundation he had laid.44 At another point Innis seemed
to say that he, Innis, was about to continue the work of Thorstein Veblen.45
W.A.Mackintosh pulled it together with the comment that ‘Veblen begat
Innis out of Shortt’.46
O.D.Skelton, was responsible for the first economic history of Canada.
Innis referred to it as a model of geographic interpretation.47 Skelton’s role
as an adviser to governments, no less than his publications and his importance
in the profession in Canada, would seem to place him next to Shortt as a
‘founder of the subject’.48
Shortt and Skelton were the giants of the first generation of professionals.
Innis and Mackintosh were the giants of the second generation. All four
were economic historians dealing with long-run factors in Canadian
economic development. The professionals did have other interests, however,
the potpourri of the academics. We will consider it only as it pertains to
the melange of borrowings and initiatives that characterized the recruitment
stage of the profession. The first campaign was well under way by 1930,
but that is another story.
A number in the profession showed interest in business cycles. G.E.
Jackson and Humphrey Michell provided quantitative analysis under the
heading ‘Industry and Trade’ in every issue of the Canadian Forum from
the first in 1920 until 1927. They produced time series for Canada, and
they reported on the work of William Berridge in England and Warren
Persons of the Harvard Economic Service. After Michell made predictions
on the basis of an hypothesized four-year agricultural cycle that proved to
be incorrect, they abandoned their column in despair of ever solving ‘the
problem of leads and lags’. In January of 1928, Donald MacGregor used
their space to review W.C.Mitchell’s Business Cycles. MacGregor rejected
the quantitative approach because it focused on symptoms rather than causes.
V.W.Bladen and A.F.W.Plumptre were more receptive of Mitchell’s
approach. After 1927 Jackson turned for new ideas to the National Bureau
of Economic Research in Washington.49
The historians produced two remarkable contributions to the analysis
of business cycles. Adam Shortt pointed out the relationship between price
fluctuations and bursts of government-supported railway construction.50
O. D.Skelton took the next logical step, ‘considering whether the principle
of the government as the flywheel in the industrial machine could be appplied
to Canada’,51
Only A.B.Balcom of Acadia University in the Maritimes approached
business cycles by way of the quantity of money theory of prices.52
There was great interest in industrial organization between 1920 and
1930, but it was part of the elaboration of the staple thesis. It was industrial
organization on a grand scale that sought an explanation of the structure
Some intrusions of history, 1890–1930 125
APPENDIX
Craufurd Goodwin has provided an account of the economics profession
in Canada before 1912. After 1928 there was a professional organization
126 A history of Canadian economic thought
Chicago
W.C.Kierstead, New Brunswick; S.B.Leacock, McGill; O.D.Skelton,
Queen’s; W.J.A.Donald, McMaster; K.W.Taylor, McMaster; H.A.Innis,
Toronto; S.J.McLean, Toronto; G.A.Elliot, Manitoba; W.W.Swanson,
Saskatchewan; D.A.McGibbon, Alberta.
Harvard
A.B.Balcom, Acadia; W.R.Maxwell, Dalhousie; J.C.Hemmeon, McGill;
W.A.Mackintosh, Queen’s; W.C.Clark, Queen’s; W.T.Jackman, Toronto;
A.F.McGoun, Alberta; H.S.Patton, Alberta.
Wisconsin
J.A.Estey, Dalhousie; L.C.Gray, Saskatchewan.
Yale
T.H.Boggs, British Columbia.
Columbia
E.H.Oliver, Saskatchewan.
Edinburgh/Glasgow
A.Shortt, Queen’s; J.Mavor, Toronto; R.M.Mclvor, Toronto; R.E. Freeman,
Western Ontario; W.B. Hurd, Brandon.
Cambridge
G.E.Jackson, Toronto; G.I.H.Loyd, Toronto; C.R.Fay,Toronto.
Some intrusions of history, 1890–1930 127
London
H.R.Kemp, Toronto; R.McQueen, Saskatchewan.
Leeds
H.Heaton, Queen’s.
Birmingham
C.A.Ashley, Queen’s.
Heidleberg
H.Michell, McMaster; L.A.Wood, Western Ontario.
Economists in government
R.H.Coats, M.C.MacLean, R.M.Fisher, D.McArthur, M.J.Patton, B.M.
Stewart, H.Marshall, J.Bonar.
Others
B.C.Bordon, Mount Allison; J.E.Todd, Dalhousie; A.McPhail, McGill;
C.A.Curtis, Queen’s; F.A.Knox, Queen’s; C.E.Walker, Queen’s; C.H. Bland,
Queen’s; A.L.McCrimmon, McMaster; A.J.Glazebrook, Toronto;
J.M.McEvoy, Western Ontario; T.H.Fraser, Manitoba; A.L.Burt, Alberta.
In the 1930s it was a staple thesis. It became a theory at the hands of Wynne
Plumptre at the end of the 1930s, but even then it looked nothing like what
came to be called the staple theory in the 1960s. The thesis was complete
long before Keynsian economics was understood, let alone accepted, in
Canada. It was complete before Canadians took an interest in international
trade as something other than an opaque, uncontrollable external force. It
was conceived in the context of an historical critique of neoclassical
economics in a period when neoclassical economics went far in
accommodating the critique, purging itself of unconscious value judgements
and then accommodating the non-market and imperfect market institutions
of historical reality. It was an attempt to make theory in the context of history,
so that as neoclassical theory accommodated historical reality its
accommodations were, after a fashion, absorbed into the thesis. The staple
thesis was a microeconomic general disequilibrium analysis of a specific
economy.
The forces in the information environment directing the evolution of
the staple thesis have been powerful, complex and unrelenting. A recent
episode in the debates among Canadian Marxists may serve as an example.
129
130 A history of Canadian economic thought
Watkins alleged that at the end of the 1930s depression, when the concern
was to keep demand and investment up, Mackintosh had suggested that
maintaining full employment would require stimulating external demand
for and foreign investment in Canada’s staples; that is, Mackintosh had
suggested a further shift in the direction of economic dependency.
Any suggestion that further reliance on international capital might be a
good thing would be abhorrent to a western Marxist nationalist such as
Watkins, but he may have had a more complex agenda. To those among
Canadian Marxists who adopted legitimization crisis theory, Keynesian
policy was an internally contradictory attempt to buy off the workers with
their own money while leaving the class structure intact. When they first
made this contention they did so by rejecting the sort of dependency theory
that had motivated Marxian nationalists up to that point, causing a marked
division in the Marxist camp.2 But, if Keynsian policies were to be carried
out by increasing external dependence, there was no contradiction between
legitimization crisis theory and dependency theory in the Canadian case,
and there was no theoretical basis for the division within the Marxist camp.
Reshaping the staple theory had its uses.
The point is not that the Marxists revised the staple theory, because
everyone revised the staple theory. The point is that the staple theory was
never a fixed thing even when it was still a thesis, and the rate of change
accelerated after it became a theory. With so much useful emendation
intervening it is not a simple thing to reconstruct the staple thesis as it was
in the early 1930s.
THEORY IN HISTORY
To say that economic history in Canada had a significant core of economic
theory would seem to challenge the gods. In summing up economics to
1932, O.D.Skelton remarked,
But few Canadian social scientists have gone much beyond the state of
analysis. So far no wide-ranging books have appeared. (The first Canadian
book on theoretical economics has appeared in May 1942.)4
Considered closely, however, these statements are not rejections of theory. They
are statements that economics in Canada had been an application of theory.
During the 1930s, when the Keynesian revolution was taking place, a comment
that textbook theory was to be scorned was really a comment that theory was
too alive and changing to be adequately presented in textbook form. Such
comments could be misconstrued. For example Wynne Plumptre’s comment:
Now unfortunately economic theory, for the most part, consists of the
unlovely and inanimate skeletons of economic controversies of the past.
The simpler the exposition, the barer the bones, and the less likely are
the skeletons to bear any resemblance to the robust arguments of the
past or to the evolving problems of the present. On the other hand, that
economic theory which relates to contemporary opinions upon matters
of national policy is usually far too complex and always far too
controversial to receive adequate treatment in a textbook.5
Theory had its place, but Canadian economists, in general, were not interested
in pure theory for its own sake. So what was the nature and role of theory
in economic thought in Canada between 1920 and 1940? Consider C.R.Fay’s
comments on theory in Canadian economics.
some Canadians suspect that when they do write their economic history
it has got to be their economic theory as well…. The method is the opposite
of that followed, let us say, in the Macmillan Report on Finance and
132 A history of Canadian economic thought
Industry. There you have such bits of history as a dominant theory allows
to ornament the preface. Here you have history as the substance…. [The
concluding chapter of Innis ‘s The Fur Trade in Canada] extracts from
the detail that has gone before something that one wants to call laws,
the Laws of Staple Production in an area of a given latitude with a given
geography and racial stock. There is more theory in it than in all the
question-begging rigmarole of English political economy on the subject
of Diminishing Returns in Agriculture. And there is almost enough matter
in the book for another chapter of conclusions which would be equally
important to theory concerning the economics of barter trade,6
Fay must not be taken too seriously, because he tended to ascribe to the
Toronto historians what he, himself, was doing. Indeed, any attempt to
systematize Innis7 must not be taken too seriously, because it may have
been that systematization was contrary to the nature of his scientific project.
Innis’s theory was something like neoclassical economics without perfect
knowledge, without continuous substitutability, without known utility and
production functions, and without a prohibition on consideration of very
long-run factors in the advance of Euro-American industrialization. But
we may let him speak for himself, in this case from his notes for a guest
appearance in Vincent Bladen’s seminar, probably in the late 1920s.
I shall warn you in the beginning that I am not sure that rent is the subject
about which I am going to talk to you nor am I certain that any other
term will cover the subject matter which I have in mind….
The facts about which we are concerned are very briefly the virgin natural
resources of Canada and the late stage of Canada’s industrial development….
The problem of interest to the economic theorist and the economic
historian is the disposal of the profits arising from this situation. What
is the character of the profits? In the case of wheat, costs of production
being lower with virgin soil, it might be expected that the price of wheat
sold in the European market would decline, but the evidence suggests
that the increasing industrialization of England kept par ormore than
kept par with the supply of wheat….
Perhaps we are more interested in a theory of profits than of rent. The
gigantic scale on which capital has been poured into Canada to undertake
our transcontinental type of development has made unpredictable any definite
returns.… One of the results of the surplus arising from the cashing in of
natural resources is the speed with which capital has poured into the country
and with which it has developed. Overhead costs present a continuous
unpredictable situation in which mines, pulp and paper mills and power
built up in a former non-traffic producing area give fresh contributions of….
The staple thesis, 1920–40 133
Not all the economists in Canada were engaged in this kind of theory making.
Perhaps no one but Innis was; but somehow they took enough from what
he was saying, or reacted on their own in the same informational
environment, to put together a generally accepted staple thesis describing
the nature and development of the Canadian economy.
There is a temptation to leap from C.R.Fay’s comment about the theory
of barter trade to J.C.McManus’s analysis of the institutions of the North
American Indians in the fur trade,9 which was a thorough piece of post-1970
New Institutionalism. There is a similarity between Innis’ s approach and
that of the New Institutionalists. Both look at historical practice and at the
existing structure of economic institutions first. Theory comes later. But the
difference is this: Innis, like the old Institutionalists, like the Historical School,
was looking for theory. He was discovering theory. The New Institutionalists
have their theory ready-made in neoclassical analysis. There is much in Innis
that is suggestive of the New Institutionalism,10 but there is a hiatus between
the two, a hiatus in time, in doctrine and in personal connections.
Still, a comparison of Innis’s work with that of the New Institutionalists
is instructive. Innis looked at the structure of institutions. His history was
134 A history of Canadian economic thought
For the next five years a stream of articles worrying over the role of values
in economics appeared in Canada, mostly from the pens of heads of
departments of economics and presidents of the Canadian Economics and
Political Science Association, and from Frank Knight.17 After 1937 the
The staple thesis, 1920–40 135
ECONOMIC SYSTEMS
There were people in Canada in the 1930s who advocated communist social
control of business enterprise. There had been Marxists in Canada since
the late nineteenth century, though the earliest publication of Marxist views
by a Canadian, appearing in 1887,36 made no reference to Canada. Gustavus
Myers’s work may be considered apiece of radical socialist literature, though
Myers makes no mention of Karl Marx. Certainly, from 1890 on, there
were Marxian socialists in Canada whose primary goal was to educate
Canadians, and whose instruments, inter alia, were selections from Karl
Marx, including Value, Price and Profit, Wage Labour and Capital, The
Communist Manifesto and Socialism, Scientific and Utopian37 It would be
difficult to establish the importance of these activities, or of the pamphlets
and periodicals produced by the Marxian socialist groups. Whatever it may
indicate in this regard, there were professional economists who were quite
exercised about Marxian socialism. James Mavor wanted the elimination
of all government ownership, all trade unions, and indeed, anything that
even suggested socialism.38 R.M.Maclver, who succeeded Mavor as Head
of the Department of Political Economy at the University of Toronto,
suggested a degree of social control as a defence against socialism,39 as
did O.D.Skelton.
The staple thesis, 1920–40 137
After 1917, the year of the Bolshevik Revolution in Russia, and of the
manifesto of the British Labour Party, Labour and the New Social Order,
socialism in Canada separated itself into Communism and Democratic
Socialism. The latter came to be the more influential of the two.
In a general way both kinds of socialists voiced the same critique of
capitalism. The system was judged to be inefficient. What the socialists
meant by the term efficiency was not clear, and they could have used the
neoclassical definition with effect. Their basic complaint was the existence
of excess capacity; that is, too many firms and too much capital in particular
industries, with consequent overproduction leading to periodic depressions.
The system seemed to advance in chaos and waste, producing an abundance
of silly things while basic wants went begging. If it was controlled at all, it
was controlled by a few very large firms and by an elite of disproportionately
wealthy owners of those firms. It was monopoly capitalism, fighting within
itself for international hegemony, and pulling nations into war behind it.41
The proposed solution to these problems was either enforcement of healthy
competition or social control through public commissions, public regulation
and public ownership. To the democratic socialist the beginnings of social
control were already recognizable in provincial government ownership of
utilities, and in the railway and tariff commissions of the federal government.
It was recognizable in the variety of price-fixing and market-sharing
arrangements into which private enterprise retreated from the inefficiencies
and losses associated with excessive exploitation of particular markets.
According to Francis Hankin and T.W.L.MacDermot of McGill, the answer
was to recognize the end of the competitive era, repeal the Combines Act,
which only perpetuated the outmoded system, and build a system of co-
operation co-ordinated by commissions appointed by the Government from
candidates nominated by the users of the industries involved.
Their proposal was comprehensive. They wanted rationalization of existing
arrangements under a national Economic Council representing government
and business. The Council, supported by a professional research team, would
provide information, co-ordination, advice and an overall plan. There would
be an unemployment insurance scheme to replace the existing ‘dole’. There
would be a privately owned central bank. Nationalization of banking was
rejected because ‘Bureaucratic centralization of commercial banking would
wreck the efficient work of the banks on the rocks and sands of political
interference.’42 The goal was ‘efficiency, equity and social welfare’. Unlike
138 A history of Canadian economic thought
inquire into and investigate the causes of the large spread between the
prices received for commodities by the producer thereof, and the price
paid by the consumers therefore; and the system of distribution in Canada
of farm and other natural products, as well as manufactured products.
INDUSTRIAL ORGANIZATION
Work done on the other sort of social control, that is the preservation of healthy
The staple thesis, 1920–40 139
AGGREGATE ECONOMICS
With respect to aggregate economics the point is that a group of professional
economists, mostly at Queen’s University in Kingston, was able to integrate
a number of concepts, such as the equation of exchange, the multiplier
and the categories of aggregate expenditure and output, into an analysis of
the generally depressed economic conditions of the 1930s. Monetary
reformers, not professional economists, and mostly located in Western
Canada, who had long held clear ideas about the imperfections of the existing
monetary system, were able to build their analysis, which also used these
concepts, into the circumstances of the depression to generate a justification
for social control of money and banking, and, indeed, for an increase in
the money supply as a cure for the depression. The professionals were much
140 A history of Canadian economic thought
For the most part, those individuals and institutions representing the
so-called ‘radical’ point of view demonstrated a greater capacity for
understanding economic principles and problems than those following
the ‘conservative’ approach.51
The ‘radicals’ were men like William Irvine, George Beavington and J.S.
Woodsworth, who represented those groups in Parliament that coalesced
into the Co-operative Commonwealth Federation and the Social Credit
Crusade. The ‘conservatives’ were the bankers, above all, but also the
professional economists. The bankers, quite stupidly in Brecher’s view,
clung to the Banking School real bills doctrine.52
One probes the economic journals and other published sources in vain,
in search of thoroughgoing discussion of the economics of employment.55
The rationale for setting up the central bank was not found in Keynesian
theory. Swanson of Saskatchewan and Montpetit of Laval, favouring the gold
standard over a fiat currency, were opposed. Curtis, Knox and Mackintosh
of Queen’s were in favour, as were Professors Creighton, Day, Plumptre and
Parkinson. The argument was, in general, that the gold standard mechanism
was defunct, and that something ought to be put in its place; and, that, in any
case, Canada needed an instrument for international monetary co-operation.58
With the exception of Parkinson, no one had Keynesian policy goals in mind.
The reluctance of professional economists to accept Keynesian theories
needs explanation. Consider the case of Wynne Plumptre who had been in
Keynes’s seminar at Cambridge in the early 1930s and had had some influence
in the future Keynesian mandarin, Bob Bryce, studying under Keynes.59
Plumptre understood Keynesian theory and its implications for both fiscal
and monetary policy. His cautious approach with respect to Canadian policy
was a consequence of the open nature of the Canadian economy. Unless
external demand increased, any stimulation through monetary expansion or
fiscal pump priming would only cause further over-production and falling
prices.60 Plumptre’s concern was echoed in the opinions of Frank Knox, who
had a ‘virtually exclusive concern with the international orientation of the
Canadian economy’.61 Whether this reluctance continued after 1939 remains
to be seen. According to Brecher, the changes in monetary thought and policy
in the 1930s were only a ‘forerunner of the more spectacular developments
which occurred during and after World War II’.62
The Queen’s traditions of committed public service and conservative
monetary policy did not begin with O.D.Skelton and Clifford Clark. They
142 A history of Canadian economic thought
began with Adam Shortt and his work on the Civil Service Commission,
that is, his pre-First World War attempt to turn the civil service into a merit-
based professional organization. The macroeconomic monetary and fiscal
policy favoured by the mandarins, in the 1930s, was consonant with Shortt’s
refusal to accept the monetary theories of the Birmingham School as they
surfaced in the agrarian politics of his time. Shortt first elaborated the staple
thesis in his explanation of the folly, as he saw it, of Sydenham’s Provincial
Bank of Issue. He used Canada’s dependence on external markets to argue
against the inflationist proposals of the ‘Populists’ of the early twentieth
century. But on the other hand, monetary policies that, perhaps, made sense
in a developed, relatively mature economy, were not suited to the Canadian
case in which aggregate demand and aggregate investment depended on
uncontrollable external factors. In essence, this was the position taken by
Plumptre, Knox and Mackintosh with respect to monetary and fiscal
expansion in Canada in the 1930s. It reflected the sensible side of Banking
School theory. Unless there was profitable industrial activity to be
undertaken, increasing the quantity of money would be merely inflationary;
but if the basis on which bills were issued was really real, then increasing
bank credit and currency would increase real income.
PUBLIC FINANCE
Because the problems of the Canadian federation were acute, because the
structure of the federation was at the heart of the problems, and because
the political heat generated was intense, public finance became a
preoccupation of the professional economists. In this area there were
contributions to theory, whether the rest of the world noticed or not, to the
theory of fiscal federalism, and to the theory of public finance in general.
In public finance, more than any other field of economics, the coterie of
professionals was pan (English-speaking) Canadian: J.A.Maxwell in the
Maritimes, D.C.MacGregor in Ontario, A.B.Clark in Manitoba, W.W.
Swanson in Saskatchewan, G.A.Elliot in Alberta, W.A.Carrothers in British
Columbia. The list is not exhaustive. Their accomplishment was the
cumulative effect of their collective effort.
First there was reflection on increasing provincial demands for federal
subsidies, and on the possible need for a revision of taxing powers.71 Then
came the studies detailing the reasons why. The responsibilities of the
provincial governments—health, education, welfare and roads—were
outgrowing their revenues.72 From 1932 on, at the latest, Dominion-
provincial conferences were marked by discussions concerning which
jurisdiction should have the income tax and which the corporation tax.73
144 A history of Canadian economic thought
Political concern became intense with the publication of the Jones Report,74
containing Norman McLeod Rogers’s measure of the very uneven
interregional burden of the tariff.
In an appendix to the Report75 R.A.Mackay showed that federal-
provincial financial arrangements could be changed, and had been changed
frequently, and for a variety of reasons: need, impairment of sources of
revenue, inequality, and the national interest. These changes, achieved by
Act of the British Parliament, while showing change to be possible and
desirable, fell short of the fundamental changes that seemed necessary.
There would have to be amendments to the British North America Act.
There was no procedure for amending the British North America Act.76
Still, change seemed necessary.
What was true for Nova Scotia was true for the Prairie Provinces and for British
Columbia, and, indeed for the constituent parts of a number of federations in
the Empire.78 And nowhere was there an easy solution, because the required
degree of economic centralization was politically unacceptable. There was not
even assurance about the economic aspect of the solution, because the theory
of public finance had nothing to say about the basic problems involved.
Donald MacGregor had anticipated some of these ideas, but Stewart Bates
of Dalhousie stated the whole case. Taxes, expenditures and debt could no
longer be considered in isolation from one another. The effect of the budget
in redirecting economic activity and on the general level of output would
have to be taken into account. Mr. Keynes’s investment multiplier and Mr.
The staple thesis, 1920–40 145
INTERNATIONAL TRADE
The problem of international trade was at the core of the staple thesis, because
the thesis depicted Canada as a small part of the industrialized Euro-
American economy; but the theory of international trade had no part in
the staple thesis, and very little part in Canadian economic thought in general.
Canadian economic thought was very inward-looking in the 1930s.
There was some interest in international trade theory. Review articles
kept the profession abreast of developments in the field as they proceeded
in the work of Taussig, Viner, Haberler, Yntema, Ohlin and Harrod.83 Data
on international trade were published and international trade agreements,
with their implications for free trade and the structure of the tariff, were
closely followed: The Imperial Conference of 1932, the agreement reducing
trade barriers between Canada and the United States in 1935, and the Canada-
United States-United Kingdom free trade agreement of 1938. For the most,
however, Canadians were interested in their domestic scene.
The big events for the economists were the Royal Commission on
Banking and Currency in 1933, The Royal Commission on Price Spreads,
1934–1937, The Nova Scotia Royal Commission of Provincial Economic
Inquiry in 1934, an administrative body, the National Employment
Commission, set up in 1936, and, more than any other, the (Rowell-Sirois)
Royal Commission on Dominion-Provincial Relations, the Report of which
embodied the staple thesis of Canadian economic development.
146 A history of Canadian economic thought
The first statement of the staple thesis antedates Adam Shortt, but Shortt,
writing in the first decade of the twentieth century, used the thesis to justify
rejection of Sydenham’s Currency School banking proposals in 1840. The
thesis pervaded O.D.Skelton’s ‘General Economic History of the Dominion:
1867–1912’,85 but was not explicitly stated therein.
In the early 1920s a number of scholars were working towards an
economic history of Canada, James Mavor, Head of the Department of
Political Economy at Toronto when Innis arrived, attempted a reconstruction
of Canadian development in terms of the stages that the Historical School
had inherited from Adam Smith.86 C.R.Fay, a colleague of Innis in the 1920s,
amended Mavor by defining the stages of Canadian development in terms
of successive staple exports.87 G.E.Jackson pointed to the importance of
wheat as a factor in the level of GNP in Canada.88 W.A.Mackintosh, taking
his lead from the frontier thesis of F.J.Turner in the United States, wrote
his classic ‘Economic Factors in Canadian History’,89 in which he depicted
Canadian development as a search for an export staple until wheat was
produced on the Prairies. But there was still no general treatment of Canadian
economic development.
Innis undertook his study of the fur trade. It was published in 1930,
subtitled An Introduction to Canadian Economic History. With the
publication in 1933 of Problems of Staple Production in Canada90 Innis
and his Toronto colleagues had elaborated the thesis of the The Fur Trade
to take in, in a general way, the effects of more advanced transportation
The staple thesis, 1920–40 147
(1) The pivotal place of a very few staple exports in the economic political
and social life of the countries.
(2) The dependence of successive waves of development upon changes
in the prices of staple exports.
(3) The dependence of successive waves of development upon the
discovery either of new sources of materials or of new techniques of
exploitation and transport.
(4) The extreme waves of optimism and pessimism which result from
the peculiar difficulty of estimating the probable gains and losses of
development.
(5) The import of capital and the problems arising from foreign debt.
(6) The necessity for intervention and assistance by the governments in
connection with all major developments.
148 A history of Canadian economic thought
In this formulation the staple thesis had become an implicit theory. It had
yet to be given the cause and effect logical structure of a theory. Innis had
used theory, stretching it to its limits, to analyse a particular case. Plumptre
applied the analysis in the form of description to a number of cases. In
1942 A.W. Currie gave the implicit theory a neoclassical formulation,94
but that takes us beyond the period under consideration.
Returning to the question raised by Watkins, and discussed at the opening
of this chapter, what was the relationship between the staple thesis and
Keynesian theory? Both dealt with general disequilibrium, but Keynes’s
contribution was a macroeconomic theory. The staple thesis elaborated the
microeconomic foundations of a particular, open, regionalized economy.
They led to different policy conclusions. In fact, the staple thesis stated a
problem, not a solution. Those who considered Keynesian theory in the
context of the staple thesis concluded that Keynesian policies were not the
solution in Canada.
9 Pensée économique, vingtième
siècle
149
150 A history of Canadian economic thought
Frédéric Le Play was the intellectual father of the new age in French Canada.
His importance in regard to the work of Antoine Gérin-Lajoie in nineteenth-
century Quebec has been mentioned. His most forceful channel of influence,
however, was the new sociology of Gérin-Lajoie’s son, Léon. Unlike his
father, Léon was a ‘second generation’ disciple of Le Play. That is to say,
he was biased more to objective analysis than to social reform.3 In adapting
Le Play’s methods to objective observation of the Quebec case, he developed
internationally acclaimed research techniques.
Gérin held, and attempted to substantiate, the thesis that there was such
a thing as a ‘supériorité social des Anglo-Saxons’ in Canada. By this he
meant that they were, in fact, more competent than the French; that in some
sense, the ‘Anglo-Saxons’ were deserving of the superior position they
seemed to hold. The sociological foundation of their superiority, according
to Gérin, was the aggressive individualism taught in the English schools,
on the one hand, and the traditionalism of education and rural life among
the French, on the other. Where Etienne Parent had accounted for the situation
of the French by pointing to the Conquest, Léon Gérin accounted for the
Conquest by pointing to the situation of the French.4
The specific hypothesis was new, though the idea of using social science
to solve the problems of the French in Canada was not. The idea was accepted
by a group of French-speaking, federal civil servants centreing on the person
of Errol Bouchette, Chief Clerk of the Library of Parliament in Ottawa.
Bouchette launched the project into the field of economics, where it was
subsequently anchored by the work of Edouard Montpetit.
Robert Errol Bouchette (1863–1912) shifted the focus of the nationalist
movement in Quebec from agriculture to manufacturing. He achieved this in
the course of private conversations, in public addresses and in the writing of
three books: Emparons-nous de l’industrie,5 Etudes sociales et économiques
sur le Canada,6 and L’ indépendance économique du Canada français.7 His
work is one of the intellectual roots of the modern separatist movement in Quebec.
Bouchette accounted for Canada’s problems by pointing to the superiority
of the United States in attracting people and capital. He accounted for Quebec’s
problems by pointing to traditionalism and conservativism rooted in Quebec’s
predominantly rural communities, in its educational system, and in an alleged
penchant for soft and quiet living. His solution was a mild form of democratic
Pensée économique, vingtième siècle 151
qui sont déjà installées chez nous, nous pouvons, grâce à notre nombre,
et par la practique de solidarity nous soustraire quand même à leur
dépendance. Incapable de récourir a 1’association de capitaux nous
pouvons en effet récourir à 1’association de personnes…22
There was a new insistence in the tone of these assertions, and they
contained a new idea of how the French Canadian project might be carried
out. Marcotte repeated the old ideas about increasing the quantity of
economics and science being taught in the schools, and about activating a
French Canadian business class. As for capital, he again asserted that there
was sufficient if only it could be centralized and properly directed. Barbeau
took almost the same stand. ‘Au commencement de notre misère il y a l’école;
au commencement de notre libération, il y a l‘école.’30 But Barbeau despaired
of any help from the French-speaking business elite. The bourgeoisie of
French Canada had failed. Their time was past. In their place the schools
would produce a new kind of elite, an elite of politicians and civil servants.
Barbeau thought in terms of government rather than private enterprise.31
Changes in the attitude of the Church, and in the attitude of les Québécois
towards the Church, were important factors in the preparation of post-Second
World War Quebec. The Church accepted socialization in economic matters,
removing any objection, from a certain point of view, to nationalization
(provincialization) of industry. Nationalization was one way in which industry
could be ‘seized’ without the adoption of ‘Anglo-Saxon attitudes’ and
institutions. The pamphleteering of Richard Arès, S.J. illustrates how Church
doctrine interfaced with changing attitudes. In 1938 Arès was sufficiently
impressed with the sorry state of the economy to suggest the need for
fundamental institutional reform.32 After 1945, when economic problems
were being addressed through new initiatives in Ottawa, he turned his attention
to the ‘national question’ in Quebec, and to the working of Confederation.33
In 1962, a year after Pope John XXIII issued his encyclical on Christianity
and social progress, Mater et Magistra, Arès outlined the implications of
the new ideas in Le rôle de l’ état dans un Québec fort.34 Had he foreseen
even ten years ahead to the cultural revolution of the late 1960s and to the
Quiet Revolution in Quebec, he might have written on the very diminished
role of the Church in the New Quebec. After 1970 Roman Catholicism had
no explicit place in economic thought in French Quebec.
Until the Second World War most economic thought in Quebec was
economics according to the definition we have received from F.- A.Angers,
but there was often some of the other kind of economics mixed in with la
pensée économique. There was economic history, as noted, and there was
some discussion of monetary economics, theory and policy.
however, that the banks responded to more than the possibility of profit,
and, therefore, that credit in Quebec should be controlled by les Québécois.35
Looking back in 1952,36 he admitted some room for government control,
but he did not surrender the gold standard.
Charles Rist would have been pleased. Raymond Tanghe and Edouard
Montpetit agreed. ‘Une autre forme de crédit qui a fait florès depuis quelques
vingt ans, c’est le crédit à l’etat, la grande illusion ou l’impôt camouflé.’37
Roger Vezina did not agree. Vezina wanted a national credit scheme to
lift the weight of the depression, much as did the Social Credit advocates
of the West.38 In Quebec, as in the rest of Canada, a full understanding of
modern money and banking theory did not come until later.
Lamontagne’s work appeared two years after Fowke’s article, but it was
prepared independently, and developed the vison in much greater detail.
It immediately became part of the general informational environment in
Quebec, informing the views of his non-neo-Keynesian colleague, Roger
Dehem, until the late 1960s, at least.47 Its substantive content challenged
in Quebec a more radical regionalism than existed in the rest of the country.
The Laval vision was not analytical. It was synthetic. Given the values
of modem liberal civilization, and the possibilities, however limited, of
positive social science, it projected a reasonable programme of social
reconstruction for Quebec and for Canada. The aspirations of those who
made the commitment were beyond reproach. It is regrettable that the naïve
Keynesianism with which the vision became associated proved to be so
vulnerable, and that, having been rooted in a theory of dependent export-
led growth, it lost credibility when the theory was called into question.
The details of this story, of course, will have to be told from inside Quebec
by someone with a wider knowledge and a keener sense of the informational
environment.48 Indeed, this is epecially true in the present instance, because
the economics of Canada as described in this history of economic thought,
although neither intended to be, nor, in fact, an argument for separatism,
contradicts the economics of Canada that has been presented as one of the
arguments in favour of Quebec’s remaining in the federation.49
FRANCOIS-ALBERT ANGERS
Angers’s motivation was explicit. He intended to discredit what was known
in Quebec as the ‘centralist thesis’. That was the view, attributed to the
authors of the federal (Rowell-Sirois) commission’s report and to the civil
service elite in Ottawa, that taxation, particularly taxation of income, was
an unlimited right of the federal government, that it should be an unlimited
right because it was an instrument not only of revenue but of stabilization
policy, and that stabilization policy was a matter of federal jurisdiction
because the British North America Act had given the federal government
full responsibility for the economic condition of the federation as a whole.
The alternative ‘thesis’, which was not given a name, was the assertion
that it was the task of the federal government to ensure the social and
economic viability of the federation’s constituent parts, and that it should
do so by ensuring that provincial governments could carry out their
164 A history of Canadian economic thought
responsibilities. Quebec was not the first province to assert this thesis, but
it was its turn to assert it at the time of the provincial (Tremblay) commission’s
report. Quebec, of course, was concerned about the threat to French
Canadians as an identifiable linguistic and cultural group, and to their position
in the economic structure of the federation. Angers put it in the following
way. The New Federalism would be responsible for
causing the Canadian State to lose its political character and of being
transformed into an economic society, which, above all else, would be
concerned with material well-being and technical efficiency…. There
must be other, more cogent, motives than administrative simplification,
technical efficiency or even economic stabilization.67
Let us not forget that we have, within the past half century, witnessed
the political bankruptcy of two theories in which our modern world, or
at least certain parts of it, had placed its hopes—the liberal theory of
economic equilibrium and the quantitative theory of money in its
mathematical form…. They leave behind them principles and experiences
which are definite acquisitions for human knowledge and wisdom, but
none to defend their integral application as policies.69
This tax, while apparently the most just of all modes of raising revenue,
is, in effect, more unjust than many others which are prima facie more
objectionable.75
In brief, his argument was that the income tax was a tax on the conscientious,
that is, those who worked hard and did not falsify their income reports. It was
a tax on saving and on investment. It was a tax easily evaded by lobbying for
tax law loopholes, and by contriving to pass on the incidence. In practice it
was regressive, whereas an expenditures tax was not regressive in principle,
and could be made non-regressive in practice. Whatever else might be said of
the case that Angers made, his arguments for an expenditures tax were well
put. It is a telling comment on the role of good judgement and sound reasoning
in public policy that it took the policy makers of any jurisdiction in Canada
another thirty-three years to acknowledge these arguments. To say this, of course,
is not to agree with any corporatist views that Angers may have held.76
in the process of ‘normal science’. As Schumpeter would have said, its authors
were solid builders, adding to what they had received and providing something
for others to build on. But to correct the impression left by Sales and Paquet
some detailed reference would seem to be in order. In 1982, M.Dagnais of
the University of Montreal was cited five times, four in English-language
journals; and had published ‘A General Approach for Estimating Econometric
Models with Incomplete Observations’. J-. M. Dufour was cited eight times,
and had published ‘Recursive Stability Analysis of Linear Regression
Relationships—an Exploratory Methodology’. G. Dionne had published
‘Moral Hazard and State Dependent Utility Functions’ in the Journal of Risk
Insurance, In 1987, M.Boyer was cited fourteen times and had four articles
published, including ‘On Stackleberg Equilibria with Differential Products—
the Critical Role of the Strategy Space’ in the Journal of Industrial Economics.
All of these from the University of Montreal. J.T. Bernard had published
‘The Probability-Distribution of Future Demand—the Case of Hydro Quebec’,
in the Journal of Business Economics in 1987. Bernard was a member of the
Department at Laval. From the University of Quebec in Montreal, C.D.Fluet
had published ‘The Sharing of Total Factor Productivity Gains in Canadian
Manufacturing—a Price Accounting Approach, 1965–1980’ in Applied
Economics. This is by no means the end of the list, but, perhaps, the point
has been made.
With respect to the general subject of the present work, the economics
of Canada, it may be unnecessary to remark that, the work of Fauteux,
Faucher and André Raynauld indicated the importance of primary product
exports only in twentieth-century industrialization in Quebec. Raynauld
subtantiated his conclusion that linkages between resource industries and
the rest of the economy were weak, but he made no attempt to measure the
importance of primary product exports in relation to non-export primary
production or the production of manufactured goods for domestic
consumption as elements in Quebec’s economic growth. Traditional pensée
économique was concerned with non-francophone ownership of enterprise,
but that had no theoretical connection to staple exports. Indeed, traditional
pensée économique was affronted by the positivism of the staple thesis.
La sociologie économique might in some way be related to the staple theory
in some of its later versions, but its value orientation precluded positivistic
measurement of anything. Verification of the proposition that the staple
theory explained what happened in Quebec, or was thought by Québécois
to have explained what happened in Quebec, the Laval vision
notwithstanding, is simply not possible on the basis of the literature produced
in Quebec.
10 Keynes in a small open
economy
There have been two broad periods in post-Second World War Canadian
economics. The first, roughly from 1957 to 1970, was a period of British
influence. The second, after 1970, a period of United States influence. The
first is associated with Keynesian macroeconomics, the second with
Monetarism, neoclassical microeconomics and positive economics in
general. But this puts it too simply.
What happened in economic thought over the midpoint of the century
paralleled what had happened to the economy over the turn of the century.
Before 1896, integration of the Canadian economy into the United States
economy proceeded at a measured pace. During the Wheat Boom period
there was a massive, though temporary, reintegration of the Canadian and
British economies, both with respect to markets and with respect to capital
flows. Not that integration with the United States stopped. It did not. But,
for a time, until the end of the First World War, the British connection was
the more active. After the First World War, reversion to the late-nineteenth-
century pattern of integration with the United States was rapid and definitive.
So it was with economic thought over the midpoint of the century. Before
1939, integration of Canadian into United States economic thought proceeded
at a measured pace. In part because the economies were integrating into a
North American market, and in part because, in a world of capital deepening,
a common technology tended to dominate the effects of geography and history
in economic activity. During the post-Second World War period there was a
sudden and massive reintroduction of British economic thought into Canada.
Neo-Keynesian thought, the United States version of what was imported from
Britain, began to take hold, but it was not until the high period of the Keynesian
paradigm had passed that United States neo-Keynesianism appeared as the
alternative to Monetarism and New Classical Economics, which were also
generated in the United States. Since then, with widespread acceptance of a
positivist approach, there has been no substantial distinction between Canadian
and United States economics.
172
Keynes in a small open economy 173
In this chapter we will be concerned with the period before 1970 when
Canadians attempted to adapt Keynesian economics to a small open
economy. Keynes had assumed a closed, mature economic system. By
introducing considerations relating to development and trade into Keynesian
general equilibrium analysis Canadians, particularly in the person of Harry
Johnson, made major contributions to the development of economics.
…if each country loses its power over fiscal and monetary policy due to
the growth of multinational corporations (as some observers believe Canada
has), how will aggregate demand be stabilized? Will it be possible to construct
super states? Or does multinationalism do away with Keynesian problems?34
One could say much more about Steven Hymer’s contributions, and of his
gradual conversion to the New Political Economy of neo-Marxism. It is
rare to be able to watch the process of choice as one reads, in chronological
Keynes in a small open economy 179
order, the works of an author; and to see, to some extent, the influences
and the logical steps of a fundamental redirection of thought. First, the
belief that the nation state might, through regulation and prohibition, through
industrial development policies, counteract a perceived dark side of growing
internationalism. Then the conclusion that the new internationalism, itself,
was sapping the strength of the nation state so to do. The shift in focus
from efficiency to equity. The perception that an unfortunate institutional
structure could be corrected only by political means, and that political means
entailed the mobilization and readjustment of classes of people. It all added
up to a change of perception from that of economics to that of political
science and sociology, from neoclassical analysis to neo-Marxian analysis,
from acceptance of the established order of things, to ‘radicalism’.
Steven Hymer’s ideas were root elements in the Report of the Task Force
on Foreign Ownership and the Structure of Canadian Industry,35 and in
subsequent work by Mel Watkins.
a clear and perhaps unamendable statement. Once again, Minerva’s Owl took
flight in the gathering storm.39 In the 1960s we come to the best and the worst
of Canadian Keynesianism; and to the arrival of the forces of its disintegration;
that is, the ravages of history, and a positivist, conservative revival.
The counterattack against seemingly myopic special interests among
the efficiency-blind nationalists and regionalists took place on two levels,
polemic and analytic. Work on the level of polemics may be characterized
as naïve Keynesianism. On the level of analytics the Keynesian counterattack
found its best expression in the work of Harry Johnson.
The naive Keynesians seemed to lose all sense of history. Recall the
contention of Adam Shortt, that there was no room for domestic manipulation
of the money supply in Canada because of the open nature of the Canadian
economy. Recall the generally held view at the end of the Depression, that
the open and regionally diversified nature of the Canadian economy would
inhibit, if not prohibit, the use of Keynesian policies in Canada. The naïve
Keynesians were vaguely aware of the situation. In 1965 Scott Gordon declared
that, in Canada, throughout the 1940s and 1950s, ‘Keynesian statements were
confined to the abstract plane of discourse; they were not connected with
actual policy’.40 In noting the official rejection of Keynesian-type expansionary
fiscal policies in 1960, he said the government ‘focused attention on two
things: the structural characteristics of the unemployment problem, and the
dominating significance of the international sector’.41 The naive Keynesians
simply failed to recognize the meaning of these things. After a long discussion
of the function of Keynesian fiscal and monetary stabilization policies, with
no reference at all to the open and regionalized character of the Canadian
economy, Scott Gordon suggested that James Coyne should be fired for taking
such things into account. I hasten to add that Scott Gordon was not alone in
this. Twenty-nine other economists joined him in writing a letter to this effect
to the Minister of Finance.42 When Harry Johnson reviewed Ben Higgins’s
What Do Economists Know? ,43 in which a similar confidence in the Keynesian
paradigm was expressed, he responded that all we can say is that ‘Economists
know more about economics than non-economists’, implying that they did
not, necessarily, know more about the economy.
Harry Johnson’s assessment of monetary policy in Canada was of a
different order. I introduce it here both to throw light on the state of economic
thought in Canada, and to introduce Johnson’s contribution to Canadian
economics and to the discipline in general.
It can be argued that the openness of the Canadian economy to the world
economy, and particularly the dependence of the Canadian economy
on the American industrial complex for markets for Canadian resource
products and on the American capital market…restricts the possibilities
of economic stabilization by domestic economic policy.45
In any case, he did not think that ‘the existing state of economic knowledge’
held out ‘much prospect of significant improvement in the practical
achievement of stabilization in the near future’.46 Johnson then proceeded
to distance himself from the opinions of the signers of the letter to the Minister
of Finance, noting that the main evidence for the circumstances they had
alleged was the fact that they had alleged them.47 In short, he lifted the discussion
from the level of personalities, placed the Canadian problem in its international
context, noted the distinctiveness of the Canadian situation in that context,
and proceeded to a discussion of the relevant circumstances and theory.
It has been alleged that Harry Johnson thought he could have written a
better General Theory than Keynes. Applying the counter-factual technique
of the New Economic History we can ask, What if Harry Johnson had written
The General Theory? I answer, it would have been a better one.
Johnson’s contribution, from the perspective of Canadian economics,
was a direct reflection of the position of the Canadian economy in the
immediate post-Second World War period. The increased and increasing
internationalization of trade, in consequence of improved communications
and the spread of industrialization throughout the world, exposed the open
Canadian economy to competitive pressures, in part from new entrants into
the world economy, and in part from the formation of trading blocs, such
as the European Common Market. At the same time, the effects of the recent
depression, in the production of Keynes’s General Theory and of Keynesian
counter-cyclical stabilization policies, demanded that the Canadian
government employ national instruments to maintain full employment and
stable prices. Johnson’s contribution was the reconciliation of these two
demands, at least on the level of theory. First, he adapted Keynesian-type
general equilibrium theory, mediated through Harrod’s application of it
182 A history of Canadian economic thought
where s and m are the rates of saving and importing out of income, and I is
investment, X is exports, and Y is National Income. The statement with
respect to the growth rate then becomes
From there it was (for Harry Johnson) simply a matter of further elaboration
into the enormous complexity of the conditions of international trade.
His interest in this matter never fell off, though his treatment of it changed
over the years. The subject, a general equilibrium approach to international
trade, looked quite different when, having lost confidence in growth theory,
he presented it in the second-to-last chapter of his last text;50 but the
importance of the subject to him, which is the point here, was evident in
the frequency with which he applauded Harrod’s Towards a Dynamic
Economics as the only contribution of Cambridge (England) to economics,
after Keynes; and in the viciousness with which he attacked Meade’s The
Balance of Payments.51
Johnson had been working on the adaptation of general equilibrum theory
to an international context since 1950. It was to be his major contribution.
Meade’s book came out in 1952, and was, as Johnson elsewhere
acknowleged, an extention of Keynesian analysis to international trade. It
was not just that Meade’s statement violated the cannons of scientific
Keynes in a small open economy 183
Keynes had integrated monetary and capital theory,57 but there were
confusions that had to be cleared up by others, including Milton Friedman,
who had gone ‘far in providing a synthesis of Keynesian and classical
approaches to the demand for money in capital theory terms’.58
When Asimakopulos suggested that Harry Johnson had not agreed with
184 A history of Canadian economic thought
Regional Economics
Regional economics, which was really distinct from the regionalism
depreciated by Johnson and Grant Reuber, expressed itself primarily in
national conferences. I select only one to illustrate what was happening in
the field, the 1965 conference at Queen’s University, Areas of Economic
Stress in Canada.79 It was paid for largely by the federal and Ontario
Keynes in a small open economy 187
PUBLIC FINANCE
In the 1970s public finance shared a very Canadian problem with regional
economics, that is, the unresolved question of which welfare function(s)
was (were) to be maximized, that of the nation as a whole, or those of the
provinces. P.- A.Angers had stated the problem, in anon-theoretical way.
A.D.Scott had given it its first formal statement86 in an attempt to show
how a spending authority could be made responsible for raising taxes.
Establishing this responsibility was the justification for conditional grants
188 A history of Canadian economic thought
from one jurisdiction to another. The need to respect the jurisdiction of the
grantee, was the justification for unconditional grants. Albert Breton’s path-
breaking contribution to the design of economically optimal constitutions
was impaled on the horns of this dilemma;87 which is not to depreciate his
theoretical breakthrough in exploiting the concept of a ‘public good’ to
advance the economic analysis of institutions. His idea was to map political
jurisdictions onto the geographical extension of the publicness of goods.
This, it seemed, would justify taxation and expenditure for each public
good in one jurisdiction only.
The high point for public finance during the 1960s had not to do with
the somewhat peripheral issue of optimal constitutions, but with hard-core
taxation economics. It is a further indication of the continuing, measured
integration of Canadian economics into an emerging Euro-American
discourse that the Carter Commission Report88 was hailed by Richard
Musgrave and Arnold C.Harberger as a model for the world;89 Milton
Moore’s objections notwithstanding.90 The Report called for a complete,
consistent restructuring of the tax system along the lines of Henry Simon’s
Positive Programme for Laissez Faire. Taxation was to be on the basis of
ability to pay, and the income tax was judged best suited to the task, with
the family unit as the income-earning unit. Capital gains were to be included
in income, and the corporation and income taxes were to be integrated.
That is, all income was to be taxed, but only once. Some expenditure taxation
was to be retained, but the hidden manufacturers tax was to be replaced
with a federal sales tax that was to be integrated with provincial sales taxes.
Despite the painstaking efforts, typical of public finance economists, to
trace out in detail every possible virtue of the new tax as it ramified throughout
the economy, the proposals were not enacted into law. The Report,
nevertheless, was a remarkable achievement in the application of theory,
and a number of the younger members of the profession cut their teeth on
its studies.
Somewhere between international trade theory, regional economics, and
public finance there is an area in the economic theory of institutions called
the economics of nationalism. With the forces of technology and economics
shrinking the world and reducing established institutions to obsolescence,
it was inevitable that the national question in Canada and in Quebec would
come to the fore. The distinctive characteristics of the Canadian situation
were the occasion of the distinctive elaboration of Keynesian theory in
Canada. The same characteristics, openness and internal fractionation, were
the occasion of reaction against the tendency of technological and economic
advance to remove the meaning of national and provincial boundaries. It
can hardly be surprising that one of the contributions of Canadians has
been the economics of nationalism, and that its outstanding economists
Keynes in a small open economy 189
There were theories on the other side. Abraham Rotstein described national
boundaries as a sort of failsafe device to prevent costly disturbances from
spreading unimpeded over an increasingly interconnected world, just as
sealed bulkheads prevent a damaged ship from flooding.95 After a period
of waffling,96 Mel Watkins combined regionalism, science policy, and
nationalism with the intricate class analysis of the New Canadian Political
Economy, to construct an anti-Johnson, anti-continentalist position.97
In the 1970s, as the paradigms of the postwar period lost currency, the
debate over nationalism switched grounds. Jean-Luc Migué applied the
190 A history of Canadian economic thought
Agriculture was aided, not because it was the chief colonial activity,
191
192 A history of Canadian economic thought
but in order that it might more fully contribute towards the chief colonial
activities.3
Between 1870 and 1930, according to Fowke, the role of agriculture was
to serve ‘the so-called “purposes of the Dominion’” in the period of
continentalization and build-up of manufacturing in the St. Lawrence
Lowlands of central Canada. In short, the country had been built on the
backs of western farmers for the benefit of commercial, manufacturing
and financial interests located, consequently, in the more prosperous regions
of the country; and it was time to repay the debt with an agricultural policy
designed for the benefit of western agriculture, and not for its despoliation.
His account of Canadian economic history was simple and powerful,
an account of thoughtless, crippling exploitation of one staple after another,
with agriculture in tow until agriculture itself became the sector to exploit,
by a self-serving set of commercial interests. It recalled Innis’s pleas for
steps to be taken to redress the effects ‘which are characteristic of exploitation
without afterthought’.4 Its depiction of the common man being exploited
by a commercial, colonial elite recalled the mythology associated with the
rise of responsible, democratic government in Canada. Its appeal was
irresistible. Its inevitable effect in economics was the conceptualization
of the development of the economy as nothing but a series of staple exports.
1930 (p. 171). I find this hard to believe…. Among the results which I
would question is a level of GNP in constant dollars at a considerably
higher level during the latter 1870’s than during the earlier ‘70’s (p.
276), although Firestone himself refers to ‘severe economic slump from
1874 to 1880…’(p.146).8
But after 1820, when fur was replaced by timber and wheat, the possibility
of other sources of national economic growth and change cannot be
ignored. It is difficult, for example, to relate the enormous growth of
the French Canadian labor force in the nineteenth century to the new
staples…. It is one thing to assert that a great deal of domestic capital
formation was induced by the emergence of the wheat economy and to
list some of the regions and industries in which it must have occurred.
But when all the measurable capital formation is there before you, the
inescapable question is how much of it was so induced and where?10
Buckley’s question was straightforward enough, but the dating of the end
of reliance on staple exports was an easier subject to grasp; so, for those
working in the field, the simple, and incorrect, question became, ‘when
did the Canadian economy’s substantive dependence on primary product
exports end?’ Buckley had suggested 1820. In their contemporarily
published text, Easterbrook and Aitken suggested 1930. Working on a
different, but related, research agenda, Walter Rostow suggested some time
between 1896 and 1914.11 Gordon Bertram responded to Rostow’s answer
with evidence that the end of reliance had not occurred when Rostow said
it had.
Bertram made two points. First, Rostow’s stages model was inappropriate
for an economy dependent on primary product exports, and, second, growth
in late-nineteenth-century Canada had been gradual. There was no period
of acceleration and take-off into self-sustaining growth.12 This was, perhaps,
a correct answer to an incorrect question.
The economics of the West 195
Buckley’s question, How much dependent growth and where?, was not
explicitly raised in Bertram’s article, but it was there implicitly, appearing
in the form of an inconsistency. Bertram was aware that there had been no
decline in the growth of manufacturing in Canada between 1870 and 1890.13
It was the steadiness of growth of manufacturing, in fact, that provided the
basis for his rejection of a sudden take-off in the 1896–1914 period. The
other ground for rejecting the hypothesis was the fact that the staple theory
more clearly described the Canadian economy than did Rostow’s stages
theory, and much of Bertram’s article was given over to a rather elaborate
presentation of a Douglas North-type staple theory, and an extended
discussion of what was ‘probably’ linked to what.14 The contradiction
appeared in the form of a statement in the article’s 1967 version.
Towards the end of the article, Bertram provided clear and definite
corroboration for the proposition, which he had not made, that there was
independent development and consequent growth, unrelated to staple
exports, in central Canada between 1870 and 1890.16 The inconsistency
lay between the two grounds on which he rejected the take-off hypothesis:
the more appropriate fit of the staple theory, and the constant rate of growth
of manufacturing; because a ‘significant portion’ of the growth of
manufacturing could not be accounted for in the context of the staple theory.
He could not have a wheat export boom and a staple theory explanation of
growth, and still have a constant rate of growth over the 1870–1914 period,
much of it not related to exports, and he knew it.
The thin edge of the empirical wedge of doubt was beginning to penetrate,
but it threatened a proposition encased in an ever-thickening crust of theory.
Bertram’s own relatively extensive statement of the staple theory was a
pale reflection of what was being said elsewhere, and what would eventually
196 A history of Canadian economic thought
His point has some validity, at least so far as Quebec is concerned, but
the neglect is not inherent in a properly stated staple theory of economic
growth.23
AN ANALYTIC GAP
‘Growthmania’ became a worldwide passion in the mid-1960s, with theories
of growth, and measurement of the components of growth, multiplying
beyond control. These studies began with a broader question. What, in
general, are the factors in growth, and what importance have they had in
historical growth? The answer was reached by assuming that an Harrodian
or a neoclassical model of growth fairly represented the historical process.
By assuming that certain equilibrium conditions were met, at least for all
practical purposes, the return to the factors of production could be taken
as their contribution to output.
There were, at least, three such studies in Canada.25 One might think
that they would have cast some light on the debate over the role of staple
exports in Canadian growth, but they did not. Only one of the studies referred
to the question at all. Harvey Lithwick asserted that the primary product
export-led theory of growth was a matter of faith, apologizing that ‘we…have
very little knowledge of the role played by natural resources as factors of
production’. ‘This analytic gap’, he confessed, ‘is rather disconcerting’.26
It was not just that a growth model using the quantity and productivity of
general categories of inputs could not distinguish staple export activities;
198 A history of Canadian economic thought
but, coming at the matter from the point of view of supply only, it had no
conceptual room for a demand-determined leading sector.
In the late 1960s, ‘growthmania’ was followed by the ‘New Economic
History’, a combination of neoclassical theory and time series relating to
long-run factors in economic development.
for both technical and conceptual reasons, the theoretical apparatus the
authors use is inappropriate to test any proposition, regardless of its
ontological status…. The result does not come within light-years of
qualifying as an ‘empirical measurement’ of anything that economic
historians have ever said—or would ever want to say—about the Canadian
wheat boom…. All of the odd assumptions and empirical oversights of
the model pale into insignificance beside that truly preposterous
hypothesis: ‘Let us imagine, for example, what would have happened
The economics of the West 199
if all the land that was brought under cultivation between 1901 and 1911
had been impenetrable rock.’28
The critics went on to defend the staple theory of growth and development
in the Canadian case.
Subsequent responses attempted to justify a respecification of the model
to allow for the accrual of some of the gains from exporting wheat in forms
other than the net farm rents measured by Chambers and Gordon.29 These
could be added to net farm rents to swell the contribution of wheat exports
to growth. An auxiliary goal was to improve the estimates of farm rents and
of other sources of farm income30 to get the contribution up from Chambers
and Gordon’s 5–8 per cent to Caves and Bertrams’s 20–30 per cent.31
In the process of making these revisions, the revisionists identified the
Chambers and Gordon position with the model specified in their article.
But this was not Chambers’s model of growth in the Canadian economy. This
was the model that he alleged did not explain growth in the Canadian economy.
The critics pointed out that if the model had contained scale effects outside the
export sector, and efficiency gains in the ‘gadget sector’, induced domestic
savings, etc.,33 the measure of growth would be much higher. But this was
Chambers’s point in the first place. The only difference is the causal relation.
Does export of the staple cause productivity advance outside of its own immediate
sphere, or does the independent capability of the rest of the economy to capitalize
on an increase in exports make the greatest contribution to growth?
From this it would seem that both Chambers and Gordon, and Bertram assumed
a pre-existing surplus that could have been put to uses other than the production
of a primary product export. For whatever reason, as they mentioned the
alternative uses of the surplus, they did not list all the logical possibilities.
The alternative use could have a slightly lower rate of return, a much lower
rate of return, the same rate of return, a slightly higher rate of return, or a
much higher rate of return. It is more surprising that Chambers did not notice
this, because he had the idea that growth originated with technological advance
in the non-staple-export sector. Indeed it is quite surprising that anyone familiar
with Canadian history would not have considered the possibility of a lower
rate of return in Prairie farming, because there is a very viable case to be
made that the opening of the West was a political, nation-building exercise,
undertaken despite the economic cost; that is, despite the alternative cost of
not using the resources involved to expand higher-return activities in central
Canada. If this was the case, however, the staple theory would be inverted, if
that is the phrase. Wheat export activity would be a drag on the rest of the
economy. The more of GNP that could be attributed to it, the lower the overall
rate of growth in the economy. Of course, as the economy shifted to the new,
lower-equilibrium rate of growth, there would be an investment boom, a
temporary lifting of the rate of growth, but the rate of growth after the boom
would be lower than it would have been. Despite the support given to this
interpretation by the estimates of Firestone, and Chambers and Bertram, and
Caves and Holton, it would have been very rash to suggest that this
interpretation had any validity, but it was suggested.
Actually, two economists suggested that opening of the West for
settlement may have reduced, or did reduce, the long-run growth rate of
The economics of the West 201
the Canadian economy. Clive Southey, noting that the homestead system
of giving away land reduced farm land to a common property resource,
suggested that the rents were competed away, settlement was excessive,
and that the increase in wheat prices over the turn of the century could
have raised the cost of living throughout the whole economy.36 There seems
to have been no direct response to Southey, perhaps because his was, by
his own admission, primarily a theoretical exercise, uncomplicated by
historical data. Much earlier, and much more pointedly, John Dales had
denounced the National Policy of tariffs, railroad subsidies and immigration
subsidies as an unfortunate interference with market forces that may or
may not have contributed to extensive growth, but certainly had not
contributed to increases in per capita income.37 He kept his attack focused
on government policy, however, especially on the tariff, so it was not
immediately evident that he was deploring the effects of policy in the opening
of the West. Indeed, he may have been suggesting that the western wheat
economy would have been developed anyway, that is, without the National
Policy, and that development would have been much more efficient, but
that needed proof, and it still left him saying that the western wheat economy
was inefficient and a drag on the rest of the country.
There never was any question about the importance of settling the west,
of wheat exports, or of the massive reorientation of the economy to
accommodate the new realities of a coast-to-coast system. The question
was, rather, to what extent was the latter-day National Policy a political
act? To what extent had politically motivated subsidization increased the
extent of the economy at the expense of efficiency?
It seems out of place to talk of subsidization of western Canada in the
face of a century of western complaints about being exploited for the benefit
of eastern railway and financial interests. Yet, Dales was comfortable in
suggesting that subsidization of immigration and settlement ‘did much short-
term and long-term harm in Western Canada’.38 Could it have been as Innis
said, that subsidization, by moving the system away from efficiency, led
to demands for more subsidization?39
it would appear that the benefits to westerners in the form of real income
202 A history of Canadian economic thought
Norrie was supported by Peter George, who concluded that the CPR had
been excessively subsidized, and would not have returned a normal profit
without about 50 per cent of the subsidy;41 and by Lewis and MacKinnon,
who concluded that the Canadian Northern Railway could not have been
built without government loan guarantees, and that the result was a debt-
to-equity ratio that ended in bankruptcy.42
Papers dealing with land settlement were not as pointed with respect to
the economic efficiency of the wheat economy, still, they are not without
interest. Studness began the discussion with an assertion that the rate of
settlement was determined by government policy, slowed down, in fact, by
government policy.43 Norrie replied that the slow-down had to do with the
rapid filling up of sub-humid lands first, and the slower subsequent spread
of dry-land farming technique; that is, that the rate of settlement was determined
by economic factors.44 Then Marr and Percy found that the rate of settlement
correlated with government subsidization in the form of railway expansion
and settlement expenditures.45 Finally, Frank Lewis pointed out that, within
the constraints given by the institutional setting, settlers responded to economic
considerations,46 which allowed him to have it both ways.
The point was that the rest of the economy had subsidized the West.
The wheat economy had survived with transfers from central Canada,
contrary to what one would have thought from reading Vernon Fowke.
There was another, more interesting set of studies, more clearly in the
spirit of Buckley and Chambers, dealing with areas of the economy not
undergoing staple export-induced expansion. All had to do with agriculture
in Ontario and Quebec. Their thrust was summed up in the title, ‘The Wheat
Economy in Reverse: Ontario’s Wheat Production 1887–1917’.47 Contrary
to the simple staple theory, which had Ontario expanding under the impetus
of its own wheat exports until Western wheat came on stream and then
shifting to mixed farming and cheese exports, the shift from wheat to mixed
farming in Ontario was completed by 1870, long before settlement in the
West. Adjustments in crops were controlled by a dominant domestic market,
and not by the prices of exported products.48 Even in the first half of the
The economics of the West 203
Urquhart makes no claim that his new estimates settle this debate. He
thinks the new figures may give marginal support to the traditionalists,…
[The figures have not yet been deflated but] in the meantime we do have
a more accurate picture of the western boom than we have had in the
past. Urquhart shows that it was at first primarily an investment boom,
and that wheat exports did not explode until after 1910.51
It is only a conjecture that economics in Canada, after 1970, was not simply
absorbed into some putative United States cultural imperialism, but, rather,
integrated itself into an emerging, dominant, North American, if not global,
discourse. Even suggesting the lines of an hypothesis would require an
excursion into the generality of modern economic thought that is well beyond
the scope of an history of Canadian economics. It is possible, however, to
explore the conjecture by recounting Canadian economic thought as if the
conjecture were correct. If the facts and events so recounted do not violate
the rules of observation and reason, then we have an indication that the
conjecture is worth consideration.
We must not expect too much. There were some in the Canadian profession
who did not participate in the dominant discourse. Their presence will support
the conjecture insofar as they make explicit that they are reacting against the
dominant, positivist discourse, that is, that they are taking a ‘critical’, or value-
oriented approach, as the proponents of the New Canadian Political Economy
did. And we must expect that there were some old conservatives who, having
seen more than one grand theory fall into disrepute, turned to a less impassioned
search for something more fundamental. There will have been mavericks,
and some with purely local interests.
We look only for indications. For example, it is an indication that the
conjecture has substance, that even the internationalist, Harry Johnson,
eventually lamented the importation of economic thought from Britain and
the United States. Like the nationalists, against whom he had laboured,
when the dominant discourse was not to his liking, he abused its international
character by labelling it an evil intrustion from a foreign source.
204
A North American discourse 205
There was still too much capitalism. Persisting inflation and the failure of
the social welfare system to equalize the distribution of wealth were important
elements in the underlying explanations of both positions. The
NeoConservatives captured the commanding heights of policy in the late
1970s, insofar as they are capturable in Canada, but the point is that both
sides treated the problem as a local variant of a problem common to the
whole industrialized world.
Institute publications. Unions might not cause inflation directly, that is,
by demanding higher wages, but their lobbying the government to undertake
excessive expenditures forced it to have recourse to the Bank of Canada
for funds, and that caused inflation; and, certainly, through their contracts
against inflationary losses, unions ensured that inflation would spread
rapidly. Any benefits from unions creating harmonious work conditions,
and so improving productivity, were seen to be offset by the impact of higher
wages on the profits of small, innovative, job-creating firms. Where it had
been tried, industrial democracy generated decisions that had benefited
the workers directly, and not industry or society as a whole. The result was
inefficient firms surviving on government loans. Tripartism, that is,
corporatism, only eased the way for special interests to manipulate the
economy for their own benefit, to the detriment of the public good.21
In line with contemporary practice, Fraser Institute studies frequently
employed and quantitatively tested reduced form mathematical models.
Some of the studies were more an explanation of current market behaviour,
than a complaint about inappropriate policies. One study, for example,
explained contracting out as a phenomenon occurring when services became
sufficiently standardized to be more efficiently acquired at arms length in
the market.22 The authors did not extend their analysis to contracting out
by government, a form of ‘privatization’, but the implication can be seen.
The Ontario Economic Council sponsored at least seven studies on
industrial policy. All rejected it. All were examples of the new, positive
approach. Daly and Globerman, for example, constructed a model of the
Johnson-Breton analysis of nationalist economic policy, and put it to a
quantitative test.23 E.G.West applied a quantitative test to the Baumol-Bowen
hypothesis concerning frozen productivity levels in performing arts.24
Mathewson and Quirin used what they called a ‘two sector-firm pseudo-
empirical model’ to test the freedom of multinationals to manipulate transfer
prices, and succeeded in defining conditions in which their freedom would
be significantly limited.25
These are only examples, but they illustrate the extent to which the
conservative side in the new conservative-old liberal debate of the period
accepted the structure of the emerging dominant discourse. The Canadian
Institute for Economic Policy, on the other side of the debate, was less au
courant with the latest, positivist fashions, but nonetheless well within the
dominant, North American discourse in most of its studies.
The Canadian Institute was associated with the names of Walter Gordon
and Abraham Rotstein, and so with the Committee for an Independent
Canada. Sid Ingerman characterized the Canadian Institute’s studies as
the products of ‘Post-Keynesian Interventionists’, (‘die-hard neo-
Keynesians’), and ‘Traditional Canadian Tinkerers’, (‘bourgeois
210 A history of Canadian economic thought
Their theory was not neoclassical, but they respected all the cannons of
positive economics. The material was Canadian, but the discourse was such
that a conference featuring Sydney Weintraub, J.K.Galbraith and Lester
Thurow addressed the issues involved.31
The Institute for Research on Public Policy can be filed into the conjecture
about the emergence of a dominant global discourse because its
establishment was preceded by an extensive review of United States and
European research institutes. All were seen to be meeting needs commonly
experienced thoughout the Euro-American community.32
A North American discourse 211
ECONOMIC HISTORY
There were two new texts in economic history.37 Although they were very
different from one another, and very different from the classic Easterbrook
and Aitken text, they shared some fundamentals. The one through
compendious accounts of the sectors of the economy, the other through a
rather tight focus on alternative theories of development, came to the conclusion
that the staple theory of Canadian economic development was not supported
in the context of the new, positivist discourse. Indeed, economic history in
212 A history of Canadian economic thought
general shied away from the distinctively Canadian staple theory, and turned
to regional topics, as did history and economic history throughout North
America, thereby supporting the general conjecture of this chapter.38 Works
in the western Marxist tradition made the point by using the staple thesis,
suitably reinterpreted, to attack what they admitted to be a dominant, North
American, discourse.39 Eventually, even the Marxists abandoned the staple
theory for ideas generated by Ralph Miliband in Europe.
into the newer paradigms was clear. The crisis in macroeconomics was ‘a
crisis of policy, not a crisis of our understanding of the world of our
experience’.54
His point was that neo-Keynesian theory was a viable research programme,
able to absorb and explain new facts, and to outpredict with reasonable
accuracy its rivals. There was the point about inertial and rational
expectations, of course, but Lipsey thought the theory could accommodate
a reasonable form of rational expectation. He should have added that we
will no longer assume that parameters remain constant through changes
in policy, that policy changes will not be evaded so that effects are reduced
or even eliminated, or that definitions of unemployment (and money) need
not be updated with structural changes in the economy.
Battered, altered, perhaps improved, perhaps integrated into a broader
discourse, but certainly no longer what it had been, Keynesian theory had
survived the attacks mounted from the University of Western Ontario: first
the Monetarist attacks of David Laidler,56 then the more ‘fundamentalist’,57
New Classical attacks of Michael Parkin. Lipsey selected Parkin’s
presentation as the most formidable, recognized its content as an important
contribution to economic analysis, and dismissed it as a basis for policy
because it was not consistent with observed reality.58 Laidler and Parkin’s
colleague, Peter Howitt, dismissed it because he could see situations in
which the assumed equilibrium of New Classical theory would not obtain.59
Whatever the content of monetary theory, before or after the Monetarist
counter-revolution, Canadian monetary policy, according to Ron Shearer,60
had always been a sort of half pragmatic business that rarely took theory
into account, even in the Report of the (Porter) Royal Commission on
Banking and Finance in 1964. Presumably this fuzzy position, accompanied
by a concern for the problems of banking in an open and regionally diverse
economy, continued to be the position of Canadian monetary policy
thereafter; because Shearer, having noted that the real departure in the Porter
Commission Report was its concern for microeconomic issues, said no
more about it, except to make a brief contradictory assertion, supported
by a citation from Irving Brecher’s account of the inter bellum period, that
A North American discourse 215
the Real Bills Doctrine, associated with Adam Shortt, was the Canadian
tradition in policy,61
The Porter Commission’s preoccupation with competitive conditions
in financial intermediation was consonant with the new Euro-American
conservative preoccupations of the 1970s and 1980s; preoccupations that
were epitomized in Chant and Acheson’s much published demonstration
that non-market, non-policy directed motivations determined the behaviour
of the central bank.62 These preoccupations appeared first in Bill Hood’s
study for the (Gordon) Royal Commission on Canada’s Economic Prospects.
Under his direction, they pervaded the background studies of the Porter
Commission.
The Porter Commission Report recommended competition, disclosure,
and inspection, rather than regulation, as the route to efficiency in banking.
Any necessary regulation was to be by function, rather than by institution,
in order to remove institutional barriers to the provision of whatever services
the market demanded. Irremoveable regulations were to be centralized in
order to put provincially incorporated near-banks on the same footing as
federally incorporated banks. A subsequent study by the Economic Council
carried this thrust further by suggesting deposit insurance for all financial
intermediaries, federal and provincial, premiums being variable with risks
rather than type of institution or jurisdiction of incorporation. In general
the idea was to minimize regulation and reduce barriers to entry, while not
opening the door to self dealing through concentrated ownership in either
the financial intermediation sector or any other sector.63
The Bank Acts of 1967 and 1980 did not solve the problems outlined in
the Porter Commission Report. Deposit insurance, while reducing the need
for regulation, may have encouraged inefficient levels of risk. Homogenizing
the regulation of banks and near banks by removing interest rate ceilings
on bank loans, and permitting banks into non-banking markets, strengthened
the position of the banks. Making it easier for near banks to get into banking
proper did increase competition, or, at least, it increased the number of
banks. What also occurred, however, was a political campaign for regional
banks, and a resource boom in western Canada. Over-expansion resulted
in bank failures, massive losses to depostitors,64 a run on the new banks,
and a series of mergers. In the end the number of domestic, chartered banks
returned to where it was before Porter. Perhaps Adam Shortt had been right
after all. Very long-run market forces had shaped the Canadian banking
system and would continue to do so. Substantial structural interference
was ill-advised. Real competition came from international financial
intermediation, which, in the 1980s telematic revolution, became even more
intense. There were cases in which more attention to Canadian conditions,
and less attention to the categories of global discourse, were in order.
216 A history of Canadian economic thought
PUBLIC FINANCE
He could not have foreseen the difficulties. He correctly saw the possibilities
emerging from the theory of public goods and from developments in the
theory of non-market public choice, but he did not see the way in which
those possibilities would be realized. He failed to predict the great growth
in normative theory that, in fact, occurred. It was one thing to run a
quantitative test of the extent to which some ideal state was not being realized.
It was another to elicit from the data an explanation of what was being
realized, whether it conformed to the ideal or not. Pure positivism required
less biased curiosity and a different, more exacting discipline. A decade
later Bird was unable to report any progress towards a positive theory of
growth in government spending.67
Pure positivist considerations of the sort called for by the intractable
problems of the Canadian federation were swamped by the high fashion
of positivist testing of normative neoclassical analysis. Eventually even
the leaders in normative theory, Robin Boadway and Tom Courchene, bowed
a little to political reality,68 but they seemed unaware of the agenda of the
small group who accepted Bird’s challenge.
Attempts to work out a pure positivist theory of public finance can be
traced to the early work of Irwin Gillespie who pointed out that the norms
of compensatory fiscal policy and income equalization did not describe
the realities of the Canadian case.69 Subsequently he and two of his Carle
ton University colleagues, Walter Hettich and Stan Winer, formalized and
applied a positive approach.70
Application of neoclassical welfare considerations to public finance in
Canada in the 1970s and 1980s was spearheaded by Robin Boadway. The
style was that of the day, mini models and microcomputer corroboration.
The concern was optimal taxation in a general equilibrium context that
A North American discourse 217
REGIONAL ECONOMICS
Regional economics had started out in the 1950s as a policy looking for a
theoretical justification. It ended in the 1980s with two justifications, pointing
in two contradictory directions, and with its credibility as a basis for policy
in doubt.80 There was more at work in this than a change in the character of
the dominant discourse, but the change in discourse was also a factor.
When regional policy failed to make much of a dent in regional disparities,
satisfying politically motivated regional demands lost some of its appeal.
The economic rationale was dropped. So regional economics was reduced
to an appeal against the immediate costs of long-run efficiency, and Michael
Bradfield quoted Donald Savoie who, quoted Tom Courchene, to the effect
that ‘an unrelenting pursuit of national efficiency is simply not acceptable
in Canada. The cost in adjustment and in personal hardship would be
prohibitive.’ 81 Regional economics was one area that could not be
comfortably integrated into the general North American and European
informational environment. Donald Savoie described the situation most
aptly by suggesting that neo-Marxist, neoclassical and regional dependency
theories were ‘other worldly’ with respect to the real budgetary process
that dominated government planning and expenditure in Canada.
When André Raynauld took his turn at summing up a national conference
on regional policy in 1974,82 he did not report a neoclassical -non-neoclassical
split in opinions. He did have Roland Parenteau’s repetition of the old
complaint that it was impossible to achieve regional (read provincial)
development by elaborating structures, and spending money in federal
jurisdictions.83 Neoclassical sentiment appeared at points in Harvey Lith-
wick’s 1978 summary of the state of things.84 Perhaps policy could assist
adjustments dictated by market forces. At yet another conference at the
University of Ottawa, in 1980, the division was evident with Tom Courchene
A North American discourse 219
APPENDIX
To sample the information environment with respect to the continentalization
of the economics profession by means of an unscientific survey, I asked
the following question of 17 professional economists working in central
Canada.
States universities; and to what extent can the relative rise and decline
of departments of economics in Canada be accounted for in terms of
such relationships?
Needless to say, the sample was heavily biased by the predominant presence
of English-speaking central Canadians.
The responses were wide ranging, but not, on the whole, inconsistent
with each other. Only one respondent considered the subject of the question
‘a non-issue’ and ‘not interesting’. The others scattered themselves between
a refusal to accept the connotations of the terms ‘farm team’ and ‘branch
plant’, to those who plunged into a history of the rise and decline of ‘cloned’
centres of research interest in North America-Canada being treated, without
apologies, as an undifferentiated part of the whole.
Five theories of the inter-relationship between departments of economics
surfaced. First, migration of students and faculty tends to be confined within
continentally defined regions, rather than nationally defined regions: easterners
stay in the east, westerners in the west, francophones return to Quebec, United
States graduates of United States departments consider positions in Canada
(only in second or third choice), and so on. Second, Canadian departments
of economics expand at different rates, expanding departments becoming
over-representative of the more fashionable United States departments and
schools of thought during the period of their expansion. Third, the market
for publications being in the United States, and Canadian publishers failing
to show interest in material aimed at an international readership, Canadian
economists not dealing with local Canadian subjects are forced to accept
United States interests and standards. Just how this third factor results in
relationships between particular departments, as opposed to the general
continentalization of the profession, was not elaborated. The remaining two
theories will be stated in a specific context.
Respondents whose last degree was received prior to 1970 looked back
to the immediate post-Second World War period when Canadian departments
were thought to have drawn their inspiration, and their faculties in some
instances, from Oxbridge and the L.S.E. There was, in their view, no question
of Canadian departments being ‘branch plants’. It was just that the best
economics was being done in England. After the 1950s, in their view,
Canadian departments became more independent, and more oriented towards
centres of excellence in the United States. This group measured the
independence of the economics profession in Canada in terms of numbers
of doctorates produced and numbers of Canadian doctorates competitively
chosen for positions in Canadian departments. Even within this group of
respondents, however, there were admissions that it was probable that
Canadian students would go to United States departments for their final
A North American discourse 221
In general, the respondents rejected the terms ‘branch plant’ and ‘farm
team’, preferring to describe the relationship with United States departments
as ‘intellectual’, rather than ‘institutional’; a consequence of the natural
networking that occurs between scholars working on related topics; or a
consequence of an historically determined ‘old boy’ network—a social,
rather than an institutional or intellectual relationship. Canadians were not
thought to be special in this. Everyone looked to the United States.
Dissatisfied United Kingdom and Australian economists were migrating
to the United States in search of a better work environment. The United
States was where the best economics was being done in the 1970s and 1980s.
The department at Queen’s drew unsolicited comment from all
respondents. It was ranked middle of the road in the conservative-liberal
continuum, and was thought to be neo-Keynesian in macroeconomics. This
was consistent with its assumed strong connection with Ivy League
departments just to the south. Having had a broad, policy-oriented approach
during the time of Urquhart, Deutsch and David Smith, it was said to have
moved towards a more fashionable concentration on techniques of analysis.
The department at Trent University was supposed to be its wholly-owned
subsidiary. It was thought to be in relative decline, to have a fear of graduating
anyone, and was depreciated for being ‘a center of rest in Canada’.
If the department at Toronto was a ‘branch plant’ then it was a branch
plant of departments at Chicago, Harvard, M.I.T., and perhaps Yale, in one
or other of its many parts. It was thought to have world-class scholars in
Industrial Organization and in utility theory. The department at Toronto,
and perhaps the University of Toronto, in general, was thought to have lost
its chance during the 1950s, when it hired on the ‘American plan’, but taught
and graduated on the ‘British and European plan’, It hired PhDs, but did
not consider the doctorate to be the normal teaching degree, and did not
think of graduating any.
Having ‘risen from nothing’ in the 1970s, the department at Western
Ontario was associated with Chicago, Monetarism, rational expectations
and New Classical Economics. Of course, it was categorized with the
‘conservative institutions’. When rational expectations moved from Chicago
to Minnesota, when theory and econometrics moved from Chicago to
Wisconsin and the University of California at San Diego, and, eventually,
when ‘Minnesota macro’ became a term of derision, it was alleged, Western
took up interest in analytic and research technique, following the lead of
the University of Rochester to the point of being dubbed ‘Rochester times
three’. The department at Western was known to have a variety of good
people, and was accorded the rank of a good United States department in
‘quality’, but not in depth and breadth of cover.
The rise of the Department of Economics at the University of British
A North American discourse 223
Columbia was thought to have begun in the late 1950s. In the time of Gideon
Rosenbluth and Tony Scott, U.B.C. had a broad policy approach, but, it
had turned since to analytics and technique. Having achieved world
leadership in duality theory, the department had become bogged down,
despite its connections with west coast United States departments, and despite
its general success in keeping up with current fashion.
A fast riser among Canadian economics departments, Simon Eraser was
associated by some with Chicago and by others with U.C.L.A. and
Washington. The story was given to me as the following.
When Chung and Coase were at Chicago, and Alchian was at U.C.L.A.,
U.C.L.A. was, in fact, more ‘radical’ than Chicago. Then Chung and Barzel
‘turned up’ at Washington, and the department at Washington became a
‘clone’ of U.C.L.A.’s department, insofar as Industrial Organization was
concerned. Subsequently an M.I.T. group emerged at Washington, and two
members of the department moved to S.F.U. in Burnaby. S.F.U. then became
a ‘clone’ of Washington and U.C.L.A. at earlier periods, other influences
from the New Industrial Organization tradition having arrived at S.F.U.
by other routes.
In a kind of first-look check on these assertions, I drew up a list of
Canadian departments of economics and their members’ institutions of
last degree, as reported in the Canadian Economics Association Membership
Directory for 1990.
226
Conclusion 227
position in this case is the consistency of national policy, and the fact that,
throughout the twentieth century, it has had support from some economists,
despite changing fashions in monetary theory.
A case can be made for the one time existence of a distinct economics
among the English-speaking of what is now central Canada, that is, in
southern Ontario. It was not fundamentally indigenous, having roots deep
in the Scottish Enlightenment and in other elements in the historical
development of the British Empire. It was distinguished, nonetheless, by
its opposition to nineteenth-century British Political Economy, and by its
separation from the development of economic thought in the United States.
Its ‘theory’ of value was drawn from David Hume, its method from Francis
Bacon.
The distinct economics of Quebec, existing well into the twentieth
century, was entirely a product of the historical experience of the French
in Canada. Its ‘theory’ of value was drawn from the collective aspirations
of the French to survive as a distinct society. Its method was value-oriented.
Neither of these distinct economics survived the emergence of a positivist,
North American economic discourse in the mid-twentieth century. There
were transitional figures in both cases. H.A.Innis accepted the positive
methods of the German Historical School, mediated by American
Institutionalism. His ‘theory’ of value, by which I mean his position on
the role of values in social science, was an obsession of his later years. P.-
A.Angers rejected positive economics, but used economic theory to support
positions taken in la pensée économique au Québec. By the 1980s the
concerns of Quebec’s distinct economics emerged in la sociologie
économique. English Canadian concerns about economic development,
having been transformed from the distinctive economics of the Nationalist
School in the nineteenth century to the economics of the staple thesis, were
transformed, once again, into the post-1970 debates over the meaning and
validity of the staple theory. By then, both of these special concerns, each
in its own way, was outside the common North American discourse into
which economics in Canada had integrated itself.
It is a corollary of these ‘conclusions’ that economics in the Maritimes
and in western Canada, in some definable way, has been distinct from
economics in Ontario and Quebec. Of course, there was no economics in
western Canada before 1900, but the experience of both regions has been
a marked, continuing dependence on primary product exports; and their
economic thought has centred on that. Despite this distinctive concern, the
theory and methods used in both regions have become those of the common,
positivist, North American discourse.
Notes
PREFACE
1 Toronto, University of Toronto Press, 1979.
2 London, George Allen & Unwin, 1982.
3 New York, Macmillan, 1973.
4 Journal of Econometrics, 1982, vol. 18, pp. 295–311.
228
Notes 229
15 ibid.
16 C.D.W.Goodwin, Canadian Economic Thought, London, Cambridge University
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17 London, 1822.
18 Goodwin, op. cit, p. 18.
19 Statistical Account…. op. cit., pp. cxlix–cli.
20 ibid, p. clxxxiv.
21 ibid, pp. ccxxxii, cccxxxiii–cccxxxiv.
22 ibid, pp. cclxxiv–ccclxxvii.
23 Goodwin, op. cit., p. 14. J.Bouchette, The British Dominions in North America,
London, 1832.
24 ibid, vol. 2, pp. 220–221.
25 ibid, vol. 2, p. 222.
26 Gourlay, Statistical Account, p. cccxxxvii.
27 Report on the Affairs of British North America from the Earl of Durham, 1839.
Goodwin, op. cit., p. 22.
28 ‘The Art of Colonization’, England and America, London, 1833, vol. 2, pp.
61–262.
29 ibid, p. 103.
30 ibid, p. 110.
31 ibid, p. 150.
32 ibid, pp. 190–192.
33 ibid, Note xi, pp. 47–60.
34 Chester Martin, ‘Dominion Lands’ Policy, Toronto, McClelland and Stewart,
1973, p. 134.
35 Appendix B, op. cit., p. 113.
36 The British Dominions in America, London, 1831, vol. 2, Chapters XIV, XV,
pp. 205–247.
37 Considerations on the Past, Present and Future of the Canadas, Montreal,
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38 Fernand Ouellet, Economic and Social History of Canada: 1760–1850. Toronto,
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39 G.Paquet and J-.P.Wallot, Patronage et pouvoir dan le Bos Canada: 1794–
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40 D.McCalla, ‘The Wheat Staple and Upper Canadian Development’, Canadian
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41 ‘The Staples Thesis, Common Property, and Homesteading’, Canadian Journal
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42 “Dominion Lands” Policy, Toronto, McClelland and Stewart, 1979, pp. 116–150.
43 ibid, p. 145.
44 ‘Snarkov Island’, R.F.Neill, A New Theory of Value, Toronto, University of
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45 ‘A Defence of the Tariff’, R.F.Neill, op. cit., pp. 149–159, p. 157.
46 Chester Martin, op. cit., pp. 128–139.
2 ibid, no pagination.
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4 See N.Macdonald, Canada: 1763–1841, Immigration and Settlement, Toronto,
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7 The Stepsure Letters, Toronto, McClelland and Stewart, 1960.
8 The Letters of Agricola, Halifax, 1920.
9 M.Blaug, Economic Theory in Retrospect, op. cit., p. 26.
10 The Letters…, op. cit., p. 451.
11 ibid., p. 461.
12 ibid.
13 T.C.Haliburton, A General Description of Nova Scotia, Halifax, 1832; An
Historical and Statistical Account of Nova Scotia, Halifax, 1829; Historical
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14 op. cit, 1829.
15 The Clockmaker, Halifax, 1836.
16 See Lomas, op. cit.
17 Lomas, op. cit., p 110.
18 London, 1847.
19 Halifax, 1849.
20 op. cit., 1849, pp. 6–8, 21, 218, 288.
21 ibid., p. 218.
22 ibid., p. 218–219.
23 R.G.Haliburton, A Review of British Diplomacy and its Fruits, London, 1872.
24 R.G.Haliburton, Inter-Colonial Trade our Only Safeguard against Disunion,
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25 Speeches and Public Letters, Halifax, 1909, vol. 1, pp. 8 ff.
26 ibid., vol. 1, pp. 82–122.
27 ibid., vol. 1, pp. 646–647.
28 ibid., vol. 2, pp. 77.
29 ibid, vol. 2, pp. 104–193.
30 Charles Tupper, Political Reminiscences, London, 1914, p. 45.
31 F.B.McCurdy, Nova Scotia’s Right to Live, Halifax, 1924; A Statement of Nova
Scotia’s Position, an address to the Canadian Club of Toronto, Apr. 27, 1925.
Canada, Report of the Royal Commission on Maritime Rights, Ottawa, 1926.
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Halifax, 1934. Canada, Report of the Royal Commission on Financial
Arrangements between the Dominion and the Provinces, Ottawa, 1935.
A.B.Balcom, ‘The Jones Report, an Interpretation’, Dalhousie Review, 1935–
Notes 231
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Movement, 1919–1927, Kingston and Montreal, McGill-Queen’s, 1979.
32 C.R.Fay, ‘The Problems of the Maritime Provinces’, Dalhousie Review, 1924–
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Provinces’, Cambridge History of the British Empire, London, 1930, vol. 4,
chapter 24, pp. 657–671; Life and Labour in Newfoundland, Toronto, 1956.
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33 ‘The Problems of the Maritime Provinces’, op. cit., pp. 440.
34 See H.G.Johnson, The Antigonish Movement, Antigonish, 1944. A.F.Laidlaw,
The Campus and the Community: The Global Impact of the Antigonish
Movement, Montreal, 1961. M.M.Coady, Masters of their Own Destiny, New
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35 John Graham, Fiscal Adjustment and Economic Development: A Case Study
of Nova Scotia, Toronto, 1963.
36 S.A.Saunders, op. cit., ‘The Maritime Provinces and the National Policy’. J.A.
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37 Canada, Royal Commission on Dominion Provincial Relations, Report, Ottawa,
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38 Nova Scotia, Royal Commission on Provincial Development and Rehabilitation,
Report, Halifax, 1944.
39 B.S.Kierstead, The Economic Effects of the War on the Maritime Provinces
mimeo., no date, pp. 212 ff. p. 224.
40 Canada, Royal Commission on Provincial Development and Rehabilitation,
Report, Ottawa, 1944.
41 Halifax, 1965.
42 T.N.Brewis, Regional Economic Policy in Canada, Toronto, 1969.
43 Evolution of Economic Research in Regard to the Atlantic Region, Fredericton,
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44 ibid. p. 42.
45 A.C.Parks, The Economy of the Atlantic Provinces: 1940–1958, Halifax, 1960.
A.K.Cairncross, Economic Development and the Atlantic Provinces,
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46 R.F.Neill, ‘The Old Economics and the New National Policy’, A.C.E.A. Papers,
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47 R.C.Montreuil, ‘Canada’s National and Regional Economic Development
Strategies’. T.J.Courchene, ‘Aspects of Regional Policy in the 1970s’, Barry
Weller, ed. National and Regional Economic Development Strategies;
232 Notes
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50 ‘Railroad construction and National Prosperity: an Historic Parallel’,
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53 V.W.Bladen, ‘Operating Combinations in Canadian Industry as Revealed by
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54 B.M.Stewart, Canadian Labour Laws and the Treaty, New York, 1926. H.A.
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55 Boston, 1918.
56 Government Telephones; The Experience of Manitoba, Canada, New York,
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57 Cambridge, Mass. 1924.
58 ‘Capital Investments and Trade Balances within the British Empire’, Quarterly
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59 International Trade Balance in Theory and Practice, New York, 1922.
60 ‘An Early Canadian Contribution to Mathematical Economics: J.B.Cherryman’s
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61 op. cit.,pp. 140–141.
24 Toronto, 1940.
25 Toronto, 1937.
26 Toronto, 1938.
27 Toronto, 1939.
28 Ottawa, 1939.
29 Toronto, 1939.
30 Toronto, 1940.
31 Toronto, 1941.
32 Toronto, 1937.
33 New Haven, 1936.
34 The Rise of Toronto, Toronto, 1938.
35 I.M.Biss, ‘Overhead Costs, Time Problems, and Prices’, H.A.Innis, ed. Essays
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36 Phillip Thompson, The Politics of Labour, New York, Belford Clark, 1887.
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38 Niagara in Politics, New York, Dutton, 1925.
39 Labour in A Changing World, Toronto, 1919.
40 ‘Are We Drifting into Socialism?’, Monetary Times, January, 1913.
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42 F.Hankin and T.W.L.MacDermot, Recovery by Control, Toronto, J.M.Dent
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43 Toronto, Thomas Nelson & Sons, 1935.
44 L.B.Pearson, Mike, Toronto, University of Toronto Press, 1972, p. 72.
45 Canada, Royal Commission on Price Spreads, Report, Ottawa, 1937, p. 275.
46 V.W.Bladen, ‘Combines and Public Policy’, Proceedings of the Canadian
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47 Cambridge, Harvard University Press, 1940.
48 The General Theory of Employment Interest and Money, London, Macmillan,
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49 Toronto, University of Toronto Press, 1957.
50 Toronto, Oxford University Press, 1982.
51 op. cit., pp. 20–21.
52 op. cit., p. 33.
53 op. cit, p. 35.
54 op. cit., p. 99.
55 op. cit., p. 98.
56 op. cit, pp. 207–216.
57 op. cit, p. 142.
58 op. cit., pp. 144–154.
59 Granatstein, op. cit, pp. 49, 256.
60 Brecher, op. cit, pp. 119–121,148–150.
61 ibid., p. 146.
62 op. cit., p. 108.
63 op. cit., p. 45.
64 pp. 424–440.
65 1933, vol. 40, pp. 264–283.
66 1933, vol. 40, pp. 580–598.
Notes 245
58 ibid., p. 69.
59 ‘Keynesian Economics, Equilibrium and Time’, The Harry G.Johnson
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60 ‘The Theory of Economic Growth, M.B.Kraus and H.G.Johnson, General
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61 ‘Towards a Generalized Capital Accumulation Approach to Economic
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62 Canadian Institute of Public Affairs, Economic Planning in a Democratic
Society, Toronto, University of Toronto Press, 1963, pp. 56–64.
63 ibid., p. 38.
64 See his ‘On Demolishing Barriers to Trade’ in Rebuilding the Liberal Order,
London, Institute of Economic Affairs, 1969, pp. 11–19.
65 R.F.Neill, A New Theory of Value, Toronto, University of Toronto Press, 1972,
p. 40.
66 See also 0n Economics and Society, Chicago, University of Chicago Press,
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67 ‘On Demolishing Barriers to Trade’, op. cit., p. 13.
68 H.G.Johnson, ‘Keynes’s General Theory: Revolution or War of Independence?’
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69 ‘Scholars as Public Adversaries: The Case of Economies’, On Economics and
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70 Review, R.Dehem, ‘L’éfficacité du système économique: criteriologie de la
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71 C.L.Barber, ‘Canadian Tariff Policy’, Canadian Journal of Economics and
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Wilkinson, Effective Protection in the Canadian Economy, Toronto, University
of Toronto Press, 1968.
72 H.E.English, Industrial Structure in Canada’s Competitive Position, Montreal,
Private Planning Association, 1964.
73 H.C.Eastman and S.Stykolt, The Tariff and Competition in Canada, Toronto,
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74 For a bibliography see R.G.Harris and D.Cox, Trade. Industrial Policy, and
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75 T.M.Brown, Canadian Economic Growth, Canada, Royal Commission on
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76 J.C.Weldon and A.Asimakopulos, ‘A Synoptic View of Some Simple Models
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77 Toronto, McGraw-Hill, 1966.
254 Notes
78 For an extended list of most of the academically respectable works see A.E.
Safarian, Foreign Direct Investment: A Survey of Canadian Research, Montreal,
The Institute for Research on Public Policy, 1985.
79 W.D.Wood and R.S.Thoman (eds), Kingston, Industrial Relations Center,
Queen’s University, 1965.
80 Yves Dubé, Pierre Harvey and André Raynauld were active participants.
81 A.D.Scott, ‘Policy for Declining Regions: a Theoretic Approach’, op. cit., pp.
73–93.
82 T.N.Brewis, ‘The Problem of Regional Disparities’, op. cit, pp. 99–114. Yves
Dubé managed to sit on the fence between these positions.
83 For an excellent account of the transformation of the information environment
of federal-provincial transfers see J.S.Dupré, Tax Powers Versus Spending
Responsibilities: An Historical Analysis of Federal-Provincial Finances’, in
University League for Social Reform, The Prospect for Change, Toronto,
McGraw-Hill, 1965, pp. 83–101. If Gordon Goundry is right, the real politics
of federal-provincial bargaining is a ‘horse trade’ or a ‘poker game’ in which
each province tries to extract as much as it can from the others, without giving
up anything.
84 Toronto, Macmillan, 1969.
85 See N.H.Lithwick and G.Paquet, Urban Studies: A Canadian Perspective,
Toronto, Methuen, 1968. N.H.Lithwick, Canada’s Science Policy and the
Economy, Toronto, Methuen, 1969.
86 A.D.Scott, ‘The Evaluation of Federal Grants’, Economica, 1952, vol. 19, pp.
377–394.
87 A.Breton, ‘A Theory of Government Grants’, Canadian Journal of Economics
and Political Science, 1965, vol. 31, pp. 173–187. J.C.Weldon, ‘Public Goods
(and Federalism), Canadian Journal of Economics and Political Science, 1966,
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Canadian Journal of Economics and Political Science, 1966, vol. 32, pp. 238–
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of Economics and Political Science, 1967, vol. 33,115–117.
88 Canada, Royal Commission on Taxation Report, Ottawa, 1966.
89 Canadian Journal of Economics, 1968, vol. 1, supplement.
90 op. cit, pp. 195–205.
91 ‘Problems of Canadian Nationalism’, International Journal, 1961, vol. 16,
pp. 238–250.
92 ‘Problems of Canadian Nationalism’, The Canadian Quandary, Toronto,
McGraw-Hill, 1963, p. 19.
93 A.Breton, ‘The Economics of Nationalism’, Journal of Political Economy,
1964, vol. 72, pp. 376–386.
94 M.Watkins, ‘The Economics of Nationalism and the Nationality of Economics:
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‘Economic Nationalism in Canadian Policy’, and ‘The Ideology of Economic
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97,124–41.
Notes 255
The following is a list of all the works cited in this book, with some minor exceptions.
In some cases in which several pieces from one work were cited, and the work itself
was cited on its own count, only the work appears in the bibliography. In one or
two cases in which a large number of works were cited as examples of a genre, the
examples have not been listed in the bibliography. In cases in which a seminal work
was followed by a cluster of journal comments, the comments have not been listed
in the bibliography.
263
264 Bibliography
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Index
290
Index 291