Last year you heard my distinguished predecessor, Dr. Coats, set forth a by-no-means modest claim for statistics in his brilliant address “Statistics Comes of Age”. Sweeping as his claim was, Dr. Coats, by his great organizing and administrative abilities, has established it in this country. That he has through the shifting experiences of more than thirty years of public administration retained his vision and resourcefulness, is evidence of a high courage.

It is now more than a hundred and sixty years since Adam Smith's Wealth of Nations, popularly conceived to be the beginning of specialized study of economics, was launched into the world of letters and affairs, and it is about fifty since Economics became a subject of specialized study in Canadian universities. One has only to scan university examination papers of the late eighties, based mainly on John Stuart Mill and Fawcett's little manual, to realize that in form at least the subject has changed profoundly. But what has been accomplished? Is it an instrument or a game that has been fashioned? If an instrument, what are its limitations?

These and related questions have often been asked and answered, and the answers are not always to the economist's liking. Three years ago the then president of this Association asked, “What is left of Adam Smith?” and answered in substance, nothing except the economic man. Avoiding discussion of his exception, and adding one or two of our own, we can accept his answer as broadly not untrue. The implication, however, that modern economics even in rudimentary form is set forth in the Wealth of Nations, needs emphatic denial. As Professor Schumpeter has justly said: “Classical theory has no other claim to its epithet than pristine simplicity.” And yet, the economics of the Wealth of Nations is of a type which the economist's critics would have him adopt—the espousal of a doctrine, the initiation of a movement, propagandizing a policy. Any body of doctrine limited and attached to a policy is necessarily tied to a particular era; most of the Wealth of Nations is now of historical interest only.

In 1837, the Canadian economy was subjected both to the stresses inherent in its own unstable organization and to the strains of a temporary financial and commercial panic. The last crucial stages of economic change and social conflict within the Canadas coincided unhappily with a general financial collapse in the English-speaking world; and the coincidence of these two crises produced a violent exaggeration of all the weaknesses to which the Canadas had been subject. From the very beginning the trades of the St. Lawrence had suffered from persistent fluctuations and shared a common instability; but to these chronic infirmities were now added all the special difficulties of the shift from the trades in fur and timber to the production of wheat and flour. The discord between trade and agriculture, the disagreement between the organization of the commercial system and the demands of the rural communities, had reached the last stages of their development. While the old trading system of the St. Lawrence was expressed politically in the commercial state, the agricultural interest had become vociferously articulate in the reform parties of both provinces. And these economic contradictions and social conflicts were evidently nearing their climax at the very moment when the financial panic broke in England and the United States.

The word “Confederation” is often used in a restrictive sense to refer merely to the “British North America Act”; in this restricted sense, it refers to the constitution of Canada. In its broader sense, it should refer to the union of the entire population of Canada, grouped together, on the one hand into provinces, and on the other hand into Canadians of French and English descent, for the attainment, the development, and the protection of interests common to all, while safeguarding for each group, whether province or race, the rights and traditions peculiar to it. These two understandings of Confederation are indispensable for a better comprehension of the attitude of French Canada towards it.

Two lines of thought as to the understandings, agreements, pacts, or contracts—call them what you like—which were satisfactorily or unsatisfactorily formulated by the British North America Act must be noted. While for the majority of Anglo-Canadian constitutional authors the pacts of 1864, 1865, and 1866 were primarily made between provinces, one of which happened to be populated for the most part by Canadians of French descent, for French-Canadian constitutional writers these pacts were at one and the same time agreements between the four original provinces on the one hand and between the two great races on the other hand. The fact that Sir George Etienne Cartier and other French Fathers of Confederation did not, at the time, foresee that at some future date the provinces of Canada other than Quebec would also be populated by an important number of French Canadians, and that they consequently directed all their efforts for the safeguarding of the rights of French Canadians to securing for the province of Quebec the largest possible amount of independence, does not, in our opinion, change the above views on the matter.

“All economic problems which are concerned with overhead costs, whether those of the individual farm enterprise or those of communities or governmental bodies, are rendered active or quiescent by the fluctuations of net agricultural income.” Herein, lies the fundamental economic problem of the West. It is the purpose of this paper to examine provincial and municipal finance in the Prairie Provinces in the light of this fact, in an attempt to reveal some of the more important problems and possible lines of attack on them. The area designated as the Prairie Provinces, however, is not a unit with uniform geographic and economic characteristics. Therefore, the factors of diversity, as well as those of variability, constitute the background against which the problems of government finance should be examined. Since these factors are vital to a consideration of the problems, there must be some preliminary account of them.

The prairie economy is “exposed” to the fluctuations characteristic of a variable climate, of extreme specialization, and of dependence upon prices determined in world markets. The contrast between an almost exclusively agricultural and an agricultural-industrial region, sheltered by a kindly federal government, is most marked. The climatic and economic instability of the West has been thoroughly studied by Professor Mackintosh in two volumes in the series “Canadian Frontiers of Settlement”. The instability reflected in variable community income is highly significant, because it is the net income “which must carry the fixed charges of both the individual enterprise and the agricultural community at large”.

On September 28, 1936, Premier Patterson of Saskatchewan announced that his government had reached an agreement with the Dominion Mortgage and Investments Association under which a comprehensive scheme of agricultural debt adjustment on a voluntary basis would be established in the province. The new scheme involved partial abandonment of the principle of individual adjustment and aimed at the rapid scaling down of the debt burden by effecting what would be in essence a blanket reduction of certain classes of debts. However, since crop failures had not afflicted every part of the province with equal severity, it was decided to divide the province into three areas, the extent of each area being determined by the crop returns of the previous six years. An area comprising 158 rural municipalities and local improvement districts in the south (making up approximately one-half of the settled region of the province), and designated as the drought area, was to be given substantial reductions in relief, tax and mortgage indebtedness. A marginal area of 18 rural municipalities which had suffered less acutely was to receive special consideration and smaller adjustments to be determined by subsequent negotiation. A third area making up the balance of the province was to receive no reduction of indebtedness but was to enjoy, along with the drought and marginal areas, a reduction in the interest rate on all farm mortgages and agreements of sale of land to 6 per cent, as from January 1, 1937, together with extension of such mortgages and agreements for a period of ten years.

From one of the outstanding theorists in the field of economics to-day, Professor Pigou himself, we have the statement that, if economics is to be more than “merely an amusing toy”, it must be “realistic”, in the sense that its “interest is concentrated upon the world known in experience”, and “fruit-bearing”, in the sense that its ultimate objective is to contribute to the attainment of “practical results in social improvement”. Few will disagree with a general statement of this sort; yet none of us can fail to be conscious of the difficulties involved in maintaining a really close and useful relationship between our theoretical analyses and the most urgent practical problems of the economic world around us. It is with these difficulties and with the effect upon them of recent theoretical developments that this paper is primarily concerned.

No exhaustive consideration of whole milk marketing in its many aspects is possible within the limits of a single paper. We propose, therefore, to consider but three phases of the subject, and to treat each of these more or less separately. These three sections deal with the general nature of the price making arrangements, the sharing of the producer's market, and the possibilities of narrowing the spread between farm and retail prices.

The price received for milk which is consumed as whole milk has always been considerably more remunerative than that received for milk which reaches consumers in any of the several processed forms. This relatively higher price for whole milk can be attributed to a variety of factors which vary in importance from market to market and time to time. They include the peculiar characteristics of the whole milk demand, the fact that a number of outlets for milk other than the whole milk market exist, the fact that milk production exhibits pronounced seasonal variation, and the fact that supplies offered for sale as whole milk whether by farmers or distributors are capable of being specially restricted in amount. Of these the special nature of the whole milk demand is by far the most important; indeed, in its absence, the other factors would lose most of their special significance. The peculiar characteristics referred to are that the demand is extremely inelastic, that it is decidedly less elastic than the demand for any processed dairy product, and that it is well-nigh constant throughout the year. Because pronounced changes in price in either direction are necessary before any significant change in consumption ensues, any ordinary price appeal will be relatively valueless and will not be used. Since consumption remains substantially unaltered within a considerable price range, the natural aim of sellers will be to secure the highest price permitted by this price range. This will be possible only if the existing milk supply corresponds with the quantity which consumers are willing to take at the price indicated, or if there is a possibility of restricting the supply to that amount.

If I may be pardoned for beginning this paper on a personal note, I should like to say that anything I write must be regarded as coming from one who has, for thirty years and more, followed the co-operative movement in both England and Canada with a deep and sympathetic interest. I am a convinced and enthusiastic believer both in the theory and practice of co-operation; in it I see everything that is good and useful to the individual and to society, and nothing that is harmful. I have no serious criticism to offer of the movement, only unqualified commendation. Such is my confession of faith in co-operation.

I am afraid I am likely to disappoint a good many who hope to learn something about co-operation and its future, because to tell the honest truth that is exactly my own case. I want to hear about its future myself; I want to hear what others, better qualified than myself, have to say. My paper will therefore be in the form of a series of questions to which I so far have found no definite answers; questions which I feel very strongly ought to be answered, if they are capable of it, of which I am a trifle dubious.

The eight years' interval from 1929 to 1937 was one of the most eventful periods in modern economic history. In common with other indices of economic conditions, rates of interest returns were affected by the world-wide collapse in the years immediately after 1929, and by the recovery movement which has persisted from about 1933. Among Canadian interest rates the outstanding development was the extensive decline after 1932 in the return obtainable from most of the important types of loan investment. Two significant features of this decline were, first, the decreases in certain rates which had been relatively stable for several decades and, second, the unprecedented divergence between rates of return on short and long term bonds of high grade. These developments are broadly illustrated in table I and in a chart accompanying this article.

The remarkable changes in recent years in rates of interest returns are primarily attributable to the influence of unparalleled “easy money conditions” induced in the first instance by the economic collapse and later intensified by governmental policies of an emergency nature. These were pursued in Canada and most other countries; and were designed to modify some phases of the disequilibria produced by the depression and to promote recovery. Data presented in this paper will trace the behaviour of interest rates in Canada since 1929 as indicated by returns obtainable from time to time on several types of loan investment which are popular with institutional and private investors. Limitation of space prevents an exhaustive analysis of this subject; and the scope of the two papers to follow renders unnecessary anything but incidental reference to the causes of changes in rates.

In recent years economists have become increasingly interested in the activities of business-men as reflected in accounting records, and accountants have looked up from their work to take notice of the economist and his abstractions. Numerous articles have appeared in technical journals attempting to explain the accountant to the economist, at least one full-length, book has been written on the subject, and at Chicago last December a joint session of accountants and economists was devoted to a discussion of concepts of capital and income. Dr. Stanley E. Howard in introducing this joint discussion remarked: “Accountants can most effectively serve both their private clients and the public interest, if they can develop accounting principles that have a secure foundation in sound economic theory. Economists can better explain a profit-seeking economy if they clearly understand the principles by which the business records of the profit seekers are made.”

There are two barriers to a mutual understanding of the kind desired. The first was indicated by Professor F. A. Fetter (who spoke for the economists at this joint discussion) when he said, “If and when accountants and economists are talking about the same things … they should talk the same language …”. Unfortunately the present position is that the two not only talk different languages but each one of them in his own language uses the same word at different times to denote different things. It is perhaps unreasonable to expect that in two quite separate techniques the same term should hold an identical concept and undesirable to attempt to force it to do so. But obviously it is essential that in each technique consistent use should be made of the same term if a master of the one technique is to be able to make any use of the other without himself becoming a master of that other technique also. The second barrier is the circumstance that accounting is not a science but an art; it has traditions and conventions but not principles; its development has been determined by the practices of business-men, and its categories are derived from a particular legal system. The nature of these barriers suggests that the most useful approach would be by way of an enquiry into the procedures and concepts of the accountant, since these are properly more flexible than those of the economist.

By sociology Pareto means a synthesis of all the particular researches and disciplines dealing with human society—law, economics, political history, the history of religion, and so on—in a search for the relationships between social facts (1, 2). Sociology is to provide a framework into which will fit the results of these specialized studies; it is to be a comprehensive study which aims at discovering the principles underlying the form and changes of society in general.

Such is Pareto's own formulation. It is apparent that he believes both that there are general principles underlying the form and changes of society, and that these can be discovered by a new discipline, sociology, working on the results of the specialized studies. The primary concern of the new discipline must therefore be methodology, and Pareto devotes much more attention to the problem of method in the social sciences than he does to the construction of his own theory of society. His justification for this is his belief that the methods of all previous sociologists have been basically faulty and can lead only to invalid conclusions. In this paper it is proposed to follow Pareto's emphasis, and to deal with his analysis of social facts and his general theory of society primarily with a view to bringing out those aspects which raise the problem of method in the social sciences.