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External Determinants of the Canadian Upswing, 1921-9
Published online by Cambridge University Press: 07 November 2014
Extract
In a previous paper on the Canadian upswing, 1921-9, it was discovered that the general level of activity in Canada rose only gradually, in the main, from 1921 to 1924 while a sharper rise occurred in the latter half of the upswing. It was also seen that the accelerated rise of both domestic investment and consumption expenditure contributed to the rapid expansion of national income in the latter half of the upswing, the decline in absolute consumption being an important factor explaining the relative lethargy in the first half of the upswing.
This paper is concerned with some of the external factors which may have been partly responsible for the peculiar pattern of the Canadian upswing. For instance, was the slowness of the Canadian recovery in 1923-4 partly due to depressed conditions abroad and a consequent depression of Canadian export industries? As a prerequisite to testing such hypotheses, the relative strengths of the British, American, and Canadian upswings must be determined.
- Type
- Research Article
- Information
- Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 17 , Issue 1 , February 1951 , pp. 50 - 64
- Copyright
- Copyright © Canadian Political Science Association 1951
References
1 Malach, Vernon W., “Internal Determinants of the Canadian Upswing, 1921-9,” Canadian Journal of Economics and Political Science, XVI, 05, 1950.Google Scholar
2 Cf. Plumptre, A. F. W., Central Banking in the British Dominions (Toronto, 1947), 414.Google Scholar
3 By “abroad” is meant the rest of the world having any major degree of importance to Canada's external monetary affairs.
4 The rise of tourist receipts was another factor partly responsible for the increasingly credit nature of the current account balance. Balance of payments figures used for 1919 to 1925 and for the 1926 capital account are from Knox, F. A., Dominion Monetary Policy, 1929-1934 (Ottawa: Royal Commission on Dominion-Provincial Relations, 1939), 89–93 Google Scholar and his “Excursus” in Marshall, H., Southard, F. A., and Taylor, K. W., Canadian-American Industry (New Haven, 1936), 314 ff.Google Scholar; for other years from Dominion Bureau of Statistics, The Canadian Balance of International Payments, Preliminary Statement, 1946 (Ottawa, 1947).Google Scholar
5 The terms of trade were computed by taking the index of export prices as a percentage of the index of import prices. The price indexes of imports and exports and their major categories are from Dominion Bureau of Statistics, Prices and Price Indexes, 1913-1940 (Ottawa, 1942), 52.Google Scholar
6 Prices and Price Indexes, various issues.
7 Dominion Bureau of Statistics, Monthly Review of Business Statistics, Supplement, 01, 1938, Economic Fluctuations in Canada during the Post-War Period, 5 f.Google Scholar
8 Real or volume figures for the separate categories of exports were obtained by deflating the customs trade figures by the wholesale price indexes of these exports (note 5).
9 Animal, vegetable, non-ferrous metal, iron, and non-metallic mineral exports made the largest percentage value gains in 1924-5, their increases being 26.6, 26.2, 22.3, 18.6, and 16.3 per cent respectively.
10 Table II.
11 Economic Fluctuations in Canada, 5 f.
12 See section I, supra.
13 See Malach, “Internal Determinants of the Canadian Upswing, 1921-9,” Table II.
14 ”Other countries” signifies all foreign countries other than the United Kingdom and the United States.
15 Department of Trade and Commerce, Quarterly Report of the Trade of Canada (Monthly Report of the Trade of Canada, 1920 to 03, 1927).Google Scholar
16 Wholesale price indexes of Canadian exports going to these two areas have been constructed from data on (1) the yearly average prices for each main category of exports going to all areas and (2) the percentage distribution of British (and American) demand for the various categories of exports in the year 1926. Thus, since vegetable exports to the United Kingdom formed 74 per cent of total exports to the United Kingdom in 1926, the wholesale price index for vegetable exports has been given that much weight in the price index for exports to the United Kingdom.
No price index exists for the category “miscellaneous exports.” Hence the total remaining exports have been taken as a base. Strictly speaking, therefore, the statement should be that “vegetable exports formed 74.4 per cent of total exports other than miscellaneous.” Source, Prices and Price Indexes.
Although Canadian exports to the United Kingdom were relatively large in 1926, their distribution among the various categories appeared to be substantially similar to their distribution throughout the period under review as a whole.
17 Canadian exports to the United Kingdom and the United States in constant dollars, calculated by deflating the total value of exports to those areas by these respective price indexes, are shown in Tables III and IV. For ease of calculation in later correlations, these indexes have been transferred to the base 1929 = 100.
18 In 1927 a temporary decline in volume was also significant. See Table III.
19 Table IV.
20 Canadian Balance of International Payments, Preliminary Statement, 1946, 25, 30. Originally, customs data on exports to the United Kingdom were correlated with Bowley's national income data, linked with R. Stone's national income estimates. Although suitable adjustments were made to the export series for the separation of the Irish Free State, the degree of correlation was very low.
21 Kuznets, S., National Income and Its Composition, 1919-1938 (New York: National Bureau of Economic Research, 1941).Google Scholar
22 If 1920 is excluded, the explained variance is even higher; and the abnormality of immediate post-war relationships provides good grounds for excluding 1920. A correlation of Dr. Kuznets' estimates of American real national income converted into Canadian dollars at the current exchange rate with American real imports from Canada gives a worse fit than that in money terms but better than the British “real” correlation. The linear estimating equation was Yc = — .258 + .009X; the coefficient of determination, .826. The absence of any strong trend in both American correlations renders these simple calculations fairly useful first approximations.
23 Throughout, the phrase “relatively close fit” refers to a comparison with the similar British case and is not meant to imply a good or perfect fit in an absolute sense.
24 See, e.g., Reynolds, L. G., The Control of Competition in Canada (Cambridge, Mass., 1940), 6.CrossRefGoogle Scholar
25 I.e., in the merchandise export total excluding non-monetary gold.
26 J. A. Guthrie attributes the normal expectation of a fairly steady price for newsprint to the “desire and willingness [of newsprint producers] to act coöperatively” based upon their realization that the over-all demand for newsprint is inelastic. The Newsprint Paper Industry (Cambridge, Mass., 1941), 124.Google Scholar
27 Innis, H. A., “Economic Trends,” in Canada in Peace and War, ed. Martin, Chester (Toronto, 1941), 69.Google Scholar
28 See Table I, note 2 for source. The revised estimates yield a peak in 1928 rather than 1929; Dominion Bureau of Statistics, National Accounts, Income and Expenditure, 1926-1947 (Ottawa, 1948), Table I.Google Scholar
29 Canadian Balance of International Payments, Preliminary Statement, 1946, 25 f.
30 See Mackintosh, W. A., The Economic Background of Dominion-Provincial Retlaions (Ottawa, 1939), 39.Google Scholar
31 The depression in the cattle industry appears to have been partly the result of American action; its revival partly the result of British policy. This industry was particularly hard hit by the United States Emergency Tariff of 1921 and the Fordney-McCumber Tariff of 1922. The subsequent removal of the British cattle embargo after lengthy negotiations appears to have been partly responsible for the sharp rise in the volume of animal exports to the United Kingdom by 27.6 per cent in 1923-4 and 19.4 per cent in 1924-5.
32 Knox, , “Excursus” in Canadian-American Industry, 299.Google Scholar
33 Dominion Bureau of Statistics, The Canadian Balance of International Payments: A Study of Methods and Results (Ottawa, 1939), 175 ff.Google Scholar
34 To facilitate comparison, continuous series were used throughout these calculations. For source of gross national product see Table I, note 2. Consumption expenditure from S. B. Smith, Dominion Bureau of Statistics, letter dated November 25, 1947. Gross domestic capital formation was obtained by deducting changes in international claims and in the monetary gold stock from gross capital formation; Monthly Review of Business Statistics, 04, 1944, 38.Google Scholar