The events of the last thirty years have reinforced the attachment of the thoughtful to the Rule of Law. After watching the shocking excesses of rulers who had escaped from the restraints of law, we can think of dozens of reasons for maintaining the authority of law, which we could not have articulated thirty years ago. But agreement on the end has not enabled us to agree on the means. What kind of institutional arrangements are needed to meet the requirements of the Rule of Law? Since there are infinite possible gradations between the untrammelled licence of rulers and the Rechtstaat of eighteenth-century England, what minimum framework of restraints on rulers is needed? Supposing we could determine the formal requirements of the minimum, in what kind of a society can they be maintained and guaranteed? To be specific, will the inner nature and the inexorable requirements of the collectivist societies in which we live erode and submerge them?

What is required for the Rule of Law to be effective? On the one hand, some have contended that the phrase is essentially meaningless because it means only that the exercisers of power must show that it was conferred on them by law. Hitler showed a scrupulous regard for legal and constitutional forms as he persuaded the German Reichstag to confer on him practically boundless discretion. He could always point to legal warrant for the substance of his actions. In this sense, we might become subject to the most capricious tyranny without ever abandoning the Rule of Law.

This paper deals with long-run changes in the structure of Canadian external trade. By structure is meant the magnitude, content, direction, and “terms” of trade. The paper is focused mainly on commodity trade rather than on all international transactions, and on long-run or secular changes rather than on the business cycle or other short-run concerns. The period of study is the “half-century” 1896–1950, and it permits some observation on recent controversies in the theory of international economic adjustment, such as the discussion of Graham's Theory of International Values.

The study of Mercantilism (an ill-defined concept at best) has usually been a study of Mercantilist pamphlets. Historians have used the pamphlets to piece together a picture of the economic policy of the age; theorists have discussed the doctrines they contain, more or less sympathetically, but usually in the light of classical economic theory and therefore frequently in a faintly patronizing manner. But each age must write its own history and in a neomercantilistic world we cannot be content to view Mercantilism so narrowly. We must, I suggest, stand back from the pamphlets and take a wider view of the matter.

Some five years ago Professor Charles Wilson wrote a paper in which he attempted to do just that. In particular, he sought to identify certain objective economic conditions in the Mercantilist world which would account for Mercantilist trade practices. Behind this approach was the idea that Mercantilism was not merely an economic ideology invented by ex parte pamphleteers, but a rational economic policy reflecting the economic facts of the age. Furthermore, Professor Wilson suggested that the economic facts of the Mercantilist period bore a certain resemblance to the economic facts of the contemporary world. Heresy received its due, for the late Professor Heckscher immediately brought the weight of his authority to bear on Professor Wilson's article and gently but firmly tried to push the whole problem back into the well-worn grooves of traditional Mercantilist scholarship.

Much of the current discussion of theories of economic growth is coloured by one of two factors which repeatedly crop up in the pertinent literature. The theoretical treatment of economic growth is either too strongly policy-oriented, or it is stated in an overly general form whose results are applicable only with difficulty, and often with grave reservations, to actual cases of economic growth.

Since the practical needs of policy-makers in the United Nations and its specialized agencies and in national governments concerned with developmental policies or colonial development have provided a strong impetus for the recent study of economic growth it is not surprising that the literature on this subject should have taken on a strong policy-oriented coloration. What the practitioners needed and continue to need are general guide-lines for their work. What they ask from the theorist, therefore, is to prescribe for them a series of relatively simple formulas which make up the basic equipment of the tool-kits they can take to the four corners of the world and from which they can select, as the situation demands, the appropriate item for application. The result of this situation has been the elaboration of a large amount of knowledge, the parts of which are little integrated. This is especially unfortunate since the concept of technical assistance has tended to embrace knowledge in many fields of social science and has brought together scholars and administrators in various fields and with varied technical competence.

In his book on the principles governing the exercise of the royal power of dissolution of Parliament, Dr. Eugene Forsey cites as one of the Canadian precedents of grant and refusal of dissolution, the actions of Lieutenant-Governor Thomas R. McInnes in British Columbia in 1898 and 1900. Owing to the pressure of space, the constitutional issues raised in the Pacific Coast province received but scant notice in Dr. Forsey's study. These issues are, however, of the first importance in the constitutional history of Canada, not only because they involved the exercise of the royal power of dissolution in an unusual and arbitrary manner, but because they led, finally, to the intervention of the federal government and the removal of the Lieutenant-Governor from his appointment.

In part, the crisis which developed in British Columbia sprang from the peculiar personality of the Lieutenant-Governor himself. Like Sir Charles Metcalfe, Thomas Robert McInnes was a man with a strong sense of duty—that quality emerges clearly from his correspondence; he was likewise a man of strong views which he held strongly. There was little of the compromiser or mediator about McInnes. He wore no velvet glove nor did he speak with a soft voice. He lacked in great measure that suavity and self-effacement so necessary to the successful incumbency of Government House. One thing he did not lack was courage, an admirable quality, but dangerous when backed by stubbornness rather than by discernment.

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

The experience during the war in the techniques and dangers of large-scale financial operations, together with the unprecedented post-war inflation of currency in Germany, left a vivid impression with economists, bankers, politicians, and business men. As a result, there occurred in the following years a lively discussion both of the workings of monetary and banking systems and of their implications for policy. The discussion soon became a definite controversy in terms of adherence to, and dissent from, the philosophy of “monetary orthodoxy.”

To some extent, it was a continuation of the split which had grown out of the English Bullion Report of 1810 and had centered around the Banking and Currency Schools. There was, indeed, much debate over issues which had previously inspired the able analysis of such pioneers as Thornton, Tooke, and Overton. But there was a great deal more than that. Investigation was directed towards the most challenging problems of monetary theory, and policy recommendations took on a tone of urgency matched only by their infinite variety.

Successful political movements are frequently accompanied by, and well served by, theoretical defences of their positions which later reflection shows to be inadequate for purposes other than popular political polemics. The history of the reform movement in England in the early decades of the nineteenth century provides an excellent example. The defence of political democracy offered by Jeremy Bentham, James Mill, and their followers gave the Radicals of the 1820's and 1830's their main intellectual arguments for the Great Reform Act. A close examination of this theory suggests, however, that it is inadequate in its view both of the nature of a democratic society and of the process of policy formation therein. It is, moreover, also apparent that Bentham's theory of democracy is sharply inconsistent with the main body of Benthamite doctrines.

The basic problem in Bentham's political theory is a product of the manner in which he resolved a contradiction that exists between his ethical and his psychological theory. Utilitarian ethics rests on the principle that the rightness or wrongness of an act is decided by its effect on the happiness of the greatest number. Bentham's psychological theory, however, is egoistic and hedonistic. He offered no hope that a man will act other than in pursuit of his own interests, and little hope that these interests will naturally be associated with the interests of others.

If this psychology is valid, individuals will choose, voluntarily, the ethically proper act only when, by chance, it coincides with that act which they perceive will maximize their own personal pleasure. Bentham realized this. As a consequence, he argued that if individuals are to be brought into harmony and if the greatest happiness is to be achieved, then legal sanctions and incentives must be introduced to influence individual hedonistic calculations in favour of acts that do not diminish the happiness of others more than they increase the happiness of the doer.

There have been numerous studies of Canadian cyclical experience during the Great Depression beginning in 1929. Similarly, the cyclical experiences of 1937–8 in both the United States and the United Kingdom have been fairly popular subjects for examination. However, it is interesting that no intensive analysis of Canadian experience during the 1937–8 recession has been made, but rather it has been treated as an afterthought to studies of the 1929 downturn instead of receiving the specialized attention which it merits. As a result there are doubts about its exact timing, about the magnitude of the fluctuations involved, about the influences exerted upon Canadian activity by the comparable American and British recessions, and certainly there has been a tendency in some recent works to provide a very facile interpretation.

The 1937–8 recession is a subject of interest for several reasons. It is the last pre-war cyclical movement, and roughly coincides with similar economic changes in Canada's major trading partners. Cyclical movements in Canada do not always coincide with those in the United States, as was evident in 1948–9 and 1926–7, but when they do, a close examination of what has happened in Canada and of possible interrelationships between the Canadian and American experience may improve our understanding of Canadian cyclical patterns. This paper first represents a modest attempt to single out those sectors of the economy in which the cyclical downswing was concentrated, and second offers a tentative interpretation of the causal elements at work in this particular cycle.

At the outset I will freely confess that the preparation of this paper has caused me some misgivings. For one thing, the times beg to Heaven for a masterfully brilliant statement on the subject of federal-provincial financial relations, and few occasions could be more propitious for such a performance than the present. For another I was disturbed to find that my efforts this morning are itemized in the programme under the heading “Economics,” which suggests that I am an economist and that my subject falls primarily into that field of study.

As to making a brilliant analysis, the challenge that others might have felt was barely aroused in me and succumbed very quickly. I am beginning to feel that I now hold a record for having sustained complete sterility of new thought on federal-provincial relations over a longer period of active writing and study than any other person in Canada. Recently my score in this respect has been perfect, and the thought of abandoning this unique position was more than I could contemplate. I had somewhat more of a problem in making peace with the programme, however. I hesitate to classify the subject as part of “Economics,” but at least I am impelled to agree that it should fall within one of the social sciences. My own difficulty in deciding which one is that years of close contact with negotiations between the federal and provincial governments have shown me that in practice this subject is a compound of a great deal of simple arithmetic, a considerable element of practical politics, and a modicum of pretentious nonsense. Whether these are the earmarks of “Political Science,” “Political Economy,” or simply “Economics” I will leave it to the adherents of these disciplines to decide for themselves. For my part I am content to leave the subject unclassified, allowing it to follow its own bent and speak its own language. I have tried, however, to extract it from the heat of political skirmishing so that we can look at it in some detachment, and as well for the most part the all-important question of federal arithmetic has been left in abeyance.

Marshall and, later, Pigou were the first to question the competitive allocation of resources, arguing that “increasing-cost” industries produce beyond the optimal point and that the outputs of “decreasing-cost” industries fall short of the optimum. They proposed, on this basis, a system of taxes on the former group of industries, subsidies on the latter group. The criticism of Young, Robertson, and Knight almost completely destroyed the argument. At present, only when “external economies” (and “diseconomies”) play a part in determining the competitive supply function is it admitted that interference with the competitive allocation of resources may be justified.

Our purpose is to present diagrammatically the case for interference with the competitive allocation of resources when external economies of production are present. With the aid of three significant cross-classifications of economies we are able to arrive at several conclusions with policy implications of some importance. In particular, we seek to show that only under very special conditions will the incentive provided by subsidies restore the optimal allocation of resources. Section I is concerned with the definition of terms. Sections II to V provide the diagrammatic analysis, section VI states the policy implications of our results. Section VII briefly summarizes our earlier conclusions.

Throughout the discussion abstraction is made from any special disadvantages of government intervention. No consideration is given to the danger of bureaucratic corruption nor to the possibility that sectional interests will be advanced at the expense of the “general welfare.” Further, all problems of incentive attendant upon government intervention are neglected. Finally, the cost of collecting the revenue from which any net subsidies are to be paid is ignored.

The question underlying the tax agreements is whether the advantages of uniformity in the three chief progressive taxes outweigh the disadvantages involved in restricting provincial autonomy. The federal government can use the taxes in question not only to control the economy but also to avoid the injustice of double taxation and the waste of unequal taxation. In 1867 customs duties and excise taxes were handed over to the federal government for much the same reasons. They could be used to control the economy and it was desirable that interprovincial trade should be free. In both cases the problem had to be faced of ensuring to the provinces revenues adequate for their needs.

Although the tax agreements have increased the de facto autonomy of some provinces by enabling them to find money for social services which have come to be considered essential in Canada, they have involved some restriction of provincial autonomy in two important respects. By depriving the provinces of the taxes which can most easily be made progressive they prevent them from placing the burden of new social services on the shoulders best able to bear it; for example, the cost of hospitalization in British Columbia is defrayed by a sales tax. In the second place the federal government has made some of its payments to the provinces conditional and has thus encouraged and, indeed, almost compelled them to accept the priorities in expenditure chosen by the federal government. This process is sometimes called buying control. Conditional subsidies do not have this effect when the federal government and the provincial governments are substantially partners in a matter of common interest. However, a subsidy given in aid of any service which is distinctively provincial, for example, education, might easily carry conditions giving effect to federal policy. It is in these two ways that the tax agreements are a threat to provincial autonomy and a serious modification of the Canadian federal system.

Recently, and within a period of about twelve months, two monographs on empirical studies of demand have appeared, each reporting on the related economic and statistical theory as well as the results of extensive studies of data. Nearly two decades having now passed since the publication of the two other memorable volumes in this field, an attempt will be made in this paper to compare the recent works not only with each other, but also with these earlier classics.

The revival of interest in the Pareto-Slutsky approach to the theory of demand, occasioned by the papers of Hicks and Allen and Schultz occurred before the publication of any of the four volumes under review and each contains some account of this theory and its empirical implications. Allen and Bowley, concerned entirely with the analysis of data on family budgets, used the theory in the derivation of their hypothetical form of the relation between expenditure on a particular commodity and total expenditure (now commonly called the Engel curve). They showed that if a consumer behaves according to the postulates of the theory and if in addition his pattern of tastes is of a special variety, then his Engel curves will be linear. This is the main empirical implication deduced and subjected to test by these authors. Schultz's elegant account of the theory of demand is written with profound knowledge of the Pareto and Slutsky contributions and still must be classed as “modern” in all respects.

Measures of levels of consumption in various countries are useful not only as means of comparing the utilization of goods and services in the countries concerned but also as partial indicators of the relative levels of welfare and of production in those countries. These indicators are particularly useful in international economic relations for determining contributions to mutual defence, and to the various United Nations organizations. Although the usefulness of these measures is recognized, agreement as to the best method of obtaining these measures has not been reached.

Canada and the United States were chosen for this methodological study of international levels of consumption because of the similarity of modes of living, institutions, economic systems, age and sex distributions of the population, sizes of family, and habits of consumption in the two countries. In addition the author is familiar with both countries and most of the necessary data were available. The study was confined to the period 1947 to 1950 because a series of years is more reliable for purposes of comparison than a single year in this post-war period, and because data for more recent years were not available when the methodology was tested.

A comparison of per capita national and personal incomes in Canada and the United States during the period indicated that Canadian incomes were approximately 66 per cent of American incomes. Average family incomes in the two countries were in about the same relationship; the average Canadian family received $2,233 and the average American family $3,187 in 1948. What, then, was the relative level of consumption in the two countries?

Canadian experience in governmental compulsion in labour relations has now extended over a period of half a century. The degree of compulsion has fluctuated in relation to changing circumstances. Periods of crisis have usually called forth intensified and extended government interference and restraint on one or both of the parties to the dispute. The termination or decline of tension has not, however, resulted necessarily in a reversion to the status quo ante. Indeed there has been a tendency for legislatures to attempt to profit by experience and redraft the law so as to avoid, if possible, the repetition of similar unhappy episodes of destructive or disruptive conflict. This has been an additive process and has produced a body of law governing the behaviour of labour and management which can quite properly be described as a Canadian labour relations code. Parallel with the development of law there has been a construction and elaboration of institutions of labour, industry, and government which function in the field of labour relations. The Canadian pattern, while exhibiting similarities with those found in other industrial countries, has certain important features which render it somewhat different. These special features have had a pervading effect on the character of the industrial relationship, and have drastically influenced collective bargaining as a dynamic process. There is evidence that the imposition of the labour relations code has failed in some degree to produce the expected results, even to the extent of defeating the achievement of the objectives it was developed to accomplish.

The rating, that is, the taxing, of property in England by local government is based on the Act of 49 Elizabeth. While this statute did not specifically declare Crown property exempt from rating, it did provide that for property to be ratable there must be an occupier and that his occupation must be “beneficial.” By “beneficial occupation” the law means “an occupation from which the occupier derives either a pecuniary profit, or some personal advantage or convenience.” All buildings such as post-offices, customs-houses, barracks, prisons, belonging to the Crown and occupied for public purposes are therefore exempt from rating. Crown property in the possession of an occupier who has a beneficial occupation is ratable, and hence tenants of Crown property are required to pay property taxes. Occupation of property by nationalized industries does not amount to occupation by the Crown and these premises are also ratable. Lands occupied by the royal family are exempt for different reasons arising from the prerogatives of the Sovereign.

In 1874 the Parliament of the United Kingdom approved a system of grants in lieu of property tax which are known as “contributions in lieu of rates.” Under this system the United Kingdom makes ex gratia payments, generally equivalent to full taxes, to all county boroughs, boroughs, urban districts, and rural districts containing Crown property beneficially occupied. Other local government units do not receive these grants since they are not taxing authorities. The United Kingdom was quite certainly the first country in the world to make such payments. It may therefore be of interest to record the events leading up to this historic decision and to trace briefly the growth of these contributions.

Since its return to power in 1951 the Conservative party of Great Britain, in its programme to restrict the influence of government in the economy and ensure greater scope and freedom for private enterprise, has projected television for the first time into the arena of partisan politics. And with the emergence of television as a political issue public attention has been focused on the relative merits of public service versus commercial television. The Government's announcement in May, 1952, that “in the expanding field of television provision should be made to permit some element of competition” touched off a controversy of unusual intensity and breadth of interest. Two years later the debate culminated in action by Parliament permitting the introduction of commercial competition.

From the beginning, opposition to commercial television was vehement and articulate because of the strong conviction that television (to a far greater extent, indeed, than sound broadcasting) is a force, potentially at least, capable of revolutionizing the lives of men and reshaping the course of civilization. Thus, Herbert Morrison, deputy leader of the parliamentary Labour party, declared in December, 1953, just prior to Parliament's approval of the Government's proposal, that the debate on television policy was the most important since the war. Statements concerning the gravity of the change came from diverse groups—the Archbishops of Canterbury and York, the universities, the Labour party, a substantial segment of British industry, and even the Conservative Government itself.

Discussion of the issue of the welfare effects of direct, as compared with indirect, taxes have been greatly clarified by the recent contributions of Mr. Little and Professor Friedman. Both of them show that the usual method of using indifference curves to prove the superiority of income tax over sales tax makes “no overt reference to marginal costs. Yet it is well known that nothing can be proved without some such reference.” They employ an alternative mode of analysis which is designed to take account of conditions of cost of production.

Before the appearance of their articles, Professor Boulding showed the comparative welfare effects of proportional, progressive, and regressive income taxes by the use of indifference curves. His conclusion is that, even if the same amount of revenue is exacted, an individual is better off under a proportional than under a progressive income tax and still better off under a regressive one. Friedman questions the validity of Boulding's result because he thinks Boulding is one of those who base their arguments on a fallacious proof, although Friedman does not set out his criticism in detail. Since Boulding's results, if valid, are of great significance and since the weak point of his analysis cannot be derived directly from Friedman's contributions, it is the purpose of this paper to show the limitations of Boulding's conclusion, which, if known, would deprive it of much of its generality and usefulness.