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Published online by Cambridge University Press: 07 November 2014
In this paper, the peculiar pattern of the 1921-9 Canadian upswing of activity is examined and its major domestic determinants indicated. In addition, various factors are examined to ascertain their relative significance in determining the size of these domestic determinants. External determinants are not discussed in this paper.
The Canadian upswing from 1921 to 1929, generally speaking, was relatively sharp. By the latter year gross national product had risen 46.9 per cent over the 1921 level; net national income increased 50.4 per cent in the same period. Despite the relatively great strength of the initial expansionary forces, however, the expansion in the years 1923 and 1924 was relatively slow. Gross national product in real terms had risen 16.9 per cent from 1921 to 1922; by 1924 it had only risen 25.9 per cent above the 1921 level. By 1929 gross national product in real terms was 34.8 per cent above the 1924 level. Generally speaking, before 1925 the development proceeded gradually; from 1925 on more violence is evidenced. Hence the problem arises of explaining this peculiar pattern of the Canadian upswing and particularly its failure to continue at its original speedy rate.
Canadian incomes rose at a relatively fast pace in 1922 mainly because of increased investment activity. The theory of the multiplier and acceleration principle would lead us to expect then that as incomes rose from the increased investment, consumption would also rise and thus encourage additional investment in the consumers’ goods sector and those industries equipping this sector.
1 National income data from Dominion Bureau of Statistics, Canada Year Book, 1945 (Ottawa, 1945), p. 909.Google Scholar Gross national product data from the Dominion Bureau of Statistics, Monthly Review of Business Statistics, 03, 1944, p. 15.Google Scholar Real gross national product was obtained by deflating the current series by a composite price index derived by combining the price indices of consumers’ goods and producers’ goods respectively in the ratio of 4 to 1 (the rough ratio between consumption outlay and gross capital formation in current prices in 1926 according to the revised Dominion Bureau of Statistics estimates).
2 The strict acceleration analysis turns on direct and derived demand, a classification which differs from the ordinary consumption and producers’ goods division. For lack of more relevant statistics, data on the latter are used here as a first approximation.
3 Dominion Bureau of Statistics, letter from S. B. Smith dated Nov. 25, 1947.
4 Calculated by taking the percentage that consumption expenditure formed of gross national product.
5 For Chart I, wages and salaries excluding those of the government (Smith, letter dated Apr. 11, 1947) have been taken as a percentage of gross national product after the deduction of government income (latter from Canada Year Book, 1945, p. 909 Google Scholar). For Chart II, the new national product and wages and salaries data from Dominion Bureau of Statistics, National Accounts, Income and Expenditure, 1926-1947 (Ottawa, 1948), pp. 4 ff.Google Scholar have been used.
6 The former may be due in part to a discontinuity in one of the series. Starting in 1924, the cost of fuel and electricity was deducted to arrive at the net value of production. Data on these costs are not available for the previous period. Because of the relatively rapid electrification of industry at that time, it has not been considered suitable to apply any arbitrary “correction” based on later experience.
7 Cf. Beveridge, W. H., Full Employment in a Free Society (London, 1944), pp. 352 ff.Google Scholar, for similar movements in the relative share of salaries in the United Kingdom. This description must be qualified for the Canadian experience, however, in so far as the share of salaries probably rose in the peak year 1923 and did not fall to any great extent in the latter part of the 1925-9 boom, if our hypothesis is tenable.
8 According to the old consumption series, 1928 should have been the major peak but the new series reveals a higher rate of growth in 1927 than in 1928.
9 This index is not ideal for this purpose because it is not a measure of housing construction costs alone.
10 Strictly speaking, consumption expenditure should include only the demand for the services of durable consumers’ goods for the acceleration principle to be applied.
11 Since the business construction contracts data are available only in value terms, comparison is made with the value of consumption expenditure.
12 de Hevesy, Paul, World Wheat Planning and Economic Planning in General (London, 1940), pp. 394 ff.Google Scholar The same pattern is evidenced if the value of wheat stocks is taken instead of the volume. The value figures for the four crop years mentioned are 41, 29, 76, and 42 million dollars respectively.
13 The fluctuations of the revised Dominion Bureau of Statistics estimates of gross domestic capital formation are similar to those of the Firestone-Urquhart series for the 1926-9 period both in real and money terms. The latter are used here because of the many components given.
14 A discrepancy occurred in 1927 when the rate of increase of consumption in current prices was constant but gross domestic capital formation in current prices rose.
15 The revised Dominion Bureau of Statistics estimates either in real or money terms reveal no tendency for gross domestic capital formation to rise in 1930, mainly because of the different method of valuation of inventories. While the Department of Reconstruction took the value of the physical change of stocks, the Dominion Bureau of Statistics took the change in book value.
16 Data supplied by K. Buckley, Department of Reconstruction.
17 The 1930 high level of public investment appears to have been largely the result of an agreement between the Dominion Government and the government-owned railway system, Canadian National Railways, to maintain construction projects and employment despite the downswing of business.
18 Nor in 1927 when the rate of increase of consumption in money terms remained constant but total private investment rose.
19 In value terms, discrepancies occurred in 1927 and 1930; in volume terms, in 1928 and 1930. In the period 1920-6, discrepancies occurred in 1923 and 1924 (value comparisons).
20 Moreover, in so far as the fluctuation of the marginal item, inventory accumulation, was due mainly to the fluctuations in the size of farm inventories, its multiplier significance is open to challenge. When a farmer is unable to sell his stocks of produce, the income generating effects of this investment are surely nil. In so far as he withholds them from the market on the gamble of a higher price, the multiplier effect of such investment again might be relatively low.
21 Kuznets, S., “Schumpeter’s Business Cycles” (American Economic Review, vol. XXX, 1940, p. 261).Google Scholar
22 Brebner, J. B., North Atlantic Triangle (New Haven, 1945), p. 233.Google Scholar
23 Jones, C. F., Economic Geography (New York, 1941), p. 453.Google Scholar
24 Forsey, E. A., “The Pulp and Paper Industry” (Canadian Journal of Economics and Political Science, vol. I, 1935, pp. 502 ff.).Google Scholar
25 Canada Year Book, 1938, p. 450.Google Scholar Actually the 1929 index is relatively too low because of a change in the method of computing the number of employees in manufacturing industries.
26 This behaviour supports those who have suggested this qualification to the acceleration principle. See e.g. Kuznets, S. S., “Relations Between Capital Goods and Finished Products in the Business Cycle” (Economic Essays in Honour of Wesley Clair Mitchell, New York, 1935, p. 231).Google Scholar