I who am about to address you, salute you as the seventh President of our Association—and the first statistician in that honourable office. Our Association is called “The Canadian Political Science Association”. I well remember how we boggled over that name, when the Association was a-borning twenty-odd years ago (characteristically in Boston); it was meant to designate the polyglot omnium gatherum which we remain—economists, sociologists, political scientists proper, publicists, statisticians. As to the last, it is the fact that in countries which can afford to organize their social sciences by species (which Canada cannot), the statisticians have always shown the way. The Royal Statistical Society of Great Britain celebrated her centenary the other day, and the American Statistical is celebrating hers to-morrow, years and years before their sisters. Even in Canada, a statistical association was born, gasped, and died before our own got on its feet. Thus, in all delicacy, speaking for my statistical confrères, we feel that after six political economists for president all in a row, it is fitting we were called up higher. In the twitter of the moment, we might even wonder if we are Cinderella, who from her ashes was once invited into the parlour. She came, you remember, in all meekness, with nothing of the kitchen fire in her eye, yet I feel sure in some consciousness of merit, for it was Cinderella who finally married the prince.

The Dominion civil service has had a more troubled history than any other part of our government, and it bears on its body the marks of many campaigns. It has been constantly under attack from all quarters; it has been the subject of almost innumerable investigations by Royal Commissions and Select Committees; and it has been exposed to three complete reorganizations since 1867, each of which has involved fundamental changes of a sweeping character. Nor can one say with any assurance that the general principles and organization of the service are as yet permanently fixed. Reactionary forces which threaten to undermine the merit system seem to be increasing in recent years, and many of the fundamental ideas on which the existing service is built are proving to be unsatisfactory. It is this phase of the problem that I would like to discuss in this paper—the civil service of to-day and the developments which may be hoped for, or guarded against, to-morrow. Much of what I shall say is old and has been stated many times before; but re-statements along these lines are imperative if the public service is to occupy its proper place in the future government of the Dominion.

Seventy years ago Bagehot composed his epitaph on the Poor Law Commissioners of 1834. To his own generation, it must have sounded like the last word on attempts to administer any aspect of public affairs by independent authorities without a responsible parliamentary head. The dethronement of the “three kings of Somerset House” demonstrated the prime condition of parliamentary government. The lesson they taught was obvious and the more thoroughgoing of Bagehot's contemporaries were all for denying to bureaucratic irresponsibility the solace even of a last sanctuary at the British Museum.

Even fools, we are told, will learn the lessons of experience but it seems that some still more elementary form of education will have to be devised for political democracies. Parliamentary government has been adopted all over the world but it has always been accompanied by some defiance of basic principle. Some branch of government activity has always been wrongly sheltered from parliamentary discipline and guidance. With the twentieth century, these occasional infractions have become chronic. In England itself, affairs of the gravest national import are being entrusted to bodies without any direct responsibility to Parliament. To the democracy, the story of the “three kings of Somerset House” is a political fairy tale. It laughs and then runs off to play at trains with the London Transport Board. In some such fashion, we may surmise, Bagehot might have reasoned on the facts of to-day.

The question discussed in this paper is, How can the state, in the collective facilities which it supplies to the community, best ensure the maximum service in efficiency. Involved in the issue is the question of the functions of the state itself.

Upon this question there is a controversy of steadily-deepening vigour covering a very wide range. At the one extreme are those who hold that the state has no duties towards the citizens except to “keep the ring”. There must be such people in the world, for I hear them constantly denounced; but I have never met any of them. So far as I know, no one now questions the necessity of the state playing a great and ever-increasing part in the functioning of the community. Or, as Lord Salisbury said. “We are all socialists now”. At the other extreme is the hundred per cent. socialist who regards the state not as a functioning agency of the community but as embodying in itself the total activities of the state. In the words of G. D. H. Cole:

The development of a form of collective management of hydro power in Ontario must be viewed as a part of the National Policy; Ontario's own positive part; her peculiar sector of the line wherein she attempts through collective action to further the use of her major and almost sole source of power in order to ensure a stable industrialism and a healthy urban life. This development was begun by the municipalities and the government of Ontario in the first quarter of the present century when the federal government was pursuing the main lines of the National Policy—constructing railways, subsidizing the rails of private corporations, providing tariff protection or bonuses to manufacturers.

At the outset the drive for collective action in providing power came from the same class which supported the National Policy of the federal government; viz., the small manufacturers and traders in Toronto and those congregated in the Boards of Trade or represented in the Municipal Councils of Western Ontario. The inland towns were specially interested in power because they paid higher prices for coal than those on the lakes. But all the major municipalities soon became concerned in the collective action, and their initial activity determined in part certain salient features of the Ontario hydro as an administrative system. At first it was assumed, as is reflected in the Ross Act of 1903, that the enterprise might be entirely municipal; an organization whereby any group of municipalities through a Commission, without the financial aid of the government, might generate, transmit, and distribute electrical energy, meeting the cost through the issue of bonds secured by a mortgage on the works. But serious difficulties arose, and the overwhelming advantages of obtaining the financial support of the provincial government led to the scrapping of the scheme. A collective experiment designed to affect greatly the whole economy of Ontario obviously required the backing of provincial credit and provincial supervision. Hence the statute of 1906 which laid the legal foundation for the Ontario Hydro-Electric System.

It is felt by many people that the refusal of the government of Alberta to accept the Loan Council principle, and the similar views expressed by other provincial governments, have sounded the death knell of a Loan Council in this country; and moreover, that Mr. Dunning's recently announced modifications of the plan will have little effect as a revitalizer. It is my belief that the scheme of individual provincial Loan Councils, while desirable as a means of giving the Dominion government a measure of control in situations where it has been obliged to become financially interested, is not calculated to pave the way towards a more comprehensive system of controlling government borrowing, along the lines of the Australian Loan Council. A more effective instrument for this purpose might well prove to be the National Finance Council; its evolution into a body with effective powers of control may take a period of years, but that is not necessarily an objection, since in matters of constitutional development the tortoise not infrequently defeats the hare. This, in brief, is the thesis which is developed in the following paper.

For the purpose of this paper, discussion is limited to the control of federal and provincial governmental borrowing, and no consideration is given to the control of municipal borrowing. This is not because the latter problem is lacking in importance, or is irrelevant to the whole problem, but since the municipalities are the creations of the provincial government, and because they vary so widely in size, etc. , their control presents many fresh problems, the consideration of which would more than double the length of the present paper.

It is only since the War that federal-provincial financial relations have received serious attention. In the years up to 1914 there was much petty bickering about better terms, but most of this was political by-play. The growth of Dominion and provincial expenditures was at about the same rate, and the distribution of functions and fiscal resources between the governments appeared to be in balance. The War was responsible for a major dislocation. The Dominion was forced to reach into the field of direct taxation and since 1921 the balance of fiscal superiority has swung heavily in its favour.

During the post-War decade 1919-29 the Dominion proceeded to liquidate some part of its War debt, and, while reducing rates of taxation, it did not feel able to relinquish its hold on any important sources of revenue. The trend of Dominion expenditure and debt was slightly downward. But, as everyone knows, the trend of provincial expenditure and debt was sharply upward. Ordinary provincial expenditures were $76,404,000 in 1919 and $177,542,000 in 1929 (an increase of 132 per cent.), while bonded debt and treasury bills amounted to $304,146,000 in 1919 and to $895,334,000 in 1929 (an increase of 198 per cent.). The increase in the burden of the debt was greater than these figures indicate, because interest payments grew from $11,926,000 in 1919 to $41,207,000 in 1929 (an increase of 245 per cent.). It is not possible to show in detail for what purposes the increase in expenditures took place. Ordinary expenditures can, of course, be analysed and it will be convenient in considering them to omit expenditure for interest. Ordinary expenditures (omitting interest) rose by 112 per cent, from 1919 to 1929. But there was great variation in the rate of increase of the principal items. Thus ordinary expenditure for highways and bridges rose by 152 per cent., for education by 145 per cent., and for welfare functions by 154 per cent. All other items increased only by 78 per cent. In this remainder is expenditure for such purposes as legislation, legal administration, and civil government, which rose by 34 per cent., 69 per cent., and 83 per cent. respectively.

The present paper is intended as the background to a more detailed discussion of the facts of agricultural debt adjustment. I propose to discuss briefly the nature and objectives of our machinery of agricultural debt adjustment, the background against which it works, and some of the more important difficulties encountered in practice. The observations are based largely upon experience acquired in the West, although the setting concerns the country as a whole.

Problems of debt adjustment are primarily problems in the economics of distribution. Measures taken in this direction affect transfers of income between individuals, groups, and sections of the country. Their chief objective is to relieve the pressure on exposed groups and to allay the tensions created thereby. They constitute a part of the machinery of adjustment so essential in an economy subject to extreme variation of income and afflicted with rigidities which obstruct or divert forces tending to equilibrium. The tendency has been to concentrate upon the economics of the long run and to ignore obstacles to the free play of such forces. The importance of these obstacles is most manifest in the lower phases of the business cycle, and the presence of corrective or compensatory measures is in large part due to the cumulative effects of the inflexibility characteristic of a continental type of development and to the difficulty of planning for an economy in which variability is so marked. The results are seen in a wide range of expedients of which debt adjustment is an example. Difficulties arise owing to the failure to distinguish between social and pecuniary costs, to the widely different interpretations of what the term “justice” implies, and to differences in points of view which range from an insistence upon a strictly legal interpretation of rights and obligations to demands for debt reductions upon the basis of present income.

In a few economics text-books the labour market is still an area in which the free play of supply and demand brings about the equation of wages to the marginal product of labour. But the modern economist knows very well that “free competition” and “a living wage” are often incompatible, and that free competition itself is to-day little more than an expository device. The determination of wages, and of labour conditions generally, must take into account two important sets of influences, (a) the circumstances which affect the wage bargain between employers and employees, and (b) the extent to which “minimum wages” and basic living and working standards are fixed by the state. To the economic historian each of these opens up long chapters of social movements and state legislation which are more complete in most of the older industrial countries but to which many new pages have been added on this continent in recent times.

This experience has established the recognition of two main methods, and their accompanying sets of principles, by which wages and working conditions have been raised irrespective of the rate set in theory or practice “by the market”. The first is that of collective as distinct from individual bargaining. Collective—which is for all practical purposes, trade union— negotiation involves two principles, of which one is better known than the other. The first is that the ordinary wage-earner, even vis à vis the small employer, has little or no bargaining power on his own: not only is his labour a perishable commodity, but also his employer is likely to be a great corporation and he is beset by the potential competition of the army of the unemployed—and it may be added, even in the best of times by the potential competition of the migrant from the farm, the real “marginal worker” of an agricultural country.

The modern state whose youth was spent in strife has entered its turbulent old age. Now, as then, the old order is marshalling its forces of arms and ideas to defend itself against the impact of the new. Just as the medieval church-state was once attacked by the protagonists of the national state, so this latter is now attacked in turn by those seeking to break the bonds of a narrow nationalism. Beneath the struggle lies the ineradicable craving for fulfilment. Where once it was expressed in terms of unity under the headship of the Vicar of Christ, since the Reformation it has taken the form of unity within a sovereign state. And where once the claims of the Pope were subjected to a merciless criticism, now the claims of the sovereign are subjected to an equally relentless stricture. The opposition is no new thing, for the history of political thought in the last five centuries revolves around the attempt to impose restrictions upon the sovereign authority of the state. But it is significant that not until recently has the argument taken the form of a denial of sovereignty. This means, of course, that the assumptions underlying the political system are being challenged. Nor is it only ideas; it is also the social and economic institutions which are being poured into the crucible of criticism. The result of the withdrawal of reverence is to illuminate the nature of sovereignty, thereby enabling us to clarify its functions and to evaluate its worth.

The effects of events in other countries upon the affairs of our own have become obvious enough in recent years to turn the statement of interdependence into a commonplace. There is an uncomfortable suspicion abroad that the Fates are no longer British subjects. Yet it is doubtful whether we are fully aware of the implications in such truisms. They imply the necessity of discovering the facts of an interdependent world and of interpreting them by methods as scientific as may be possible in dealing with functions of the human variable. In our own country the need for research, interpretation, and discussion in world problems has produced the Canadian Institute of International Affairs, a semi-public body somewhat similar in conception to the Royal Institute of International Affairs in Great Britain, the Council on Foreign Relations in the United States, and the Institute of Pacific Relations in the countries especially concerned in the affairs of the Pacific area. The Canadian Institute fills a gap in adult education by providing the means of creating a body of public opinion which at least is acquainted with the language of international affairs. The work of the Institute is invaluable, but it cannot be regarded otherwise than as contributory to educational requirements to be fulfilled in the main under other auspices. Whether the study of international relations, in some form, should be part of the curriculum of every unit in the educational system is a matter of importance, but my concern in this paper is not with the schools but with the universities.