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Early Twentieth Century Business Cycles in Canada*

Published online by Cambridge University Press:  07 November 2014

Keith A. J. Hay
Keith A. J. Hay*
Affiliation:
Carleton University
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Extract

Canada's economic development during the first two decades of the twentieth century has been examined intensively by such writers as Viner, Meier, and Ingram. Viner claimed that Canadian experience from 1900–1913 clearly demonstrated the working of the classic specie flow mechanism and the international operation of the quantity theory of money. Meier re-examined the period, and in the light of additional evidence concluded that dynamic forces of economic development (expansion of the wheat economy, and later capital inflows) dominated the Canadian record during the period. Ingram also argued that rapid expansion of the economy after 1900 created investment opportunities and attracted an inflow of foreign funds that was closely linked to the development boom. More recently, Borts has suggested an important role for export prices in inaugurating the era of expansion.

This emphasis on long-run economic performance has detracted attention from short-run variations in the Canadian economy during the pre-war period. Some work in this area was attempted by Taylor and Michell, who built a composite annual index of prosperity to define cyclical swings in a rough way, and by Mitchell and Thorp who provided an annual sketch of conditions in several countries including Canada.

The precise dating of business cycle turning points in Canada owes much to the pioneering work of Chambers. He has produced tentative reference cycle turning points for the last quarter of the nineteenth century, and for the period from 1919 to 1955. The only portion of the post-Confederation century yet to be analysed in this manner is therefore the period from 1900 to 1919.

Récemment le professeur E. J. Chambers a fait avancer la question de l'identification des points de retournement du cycle économique au Canada. Il a fixé les dates du cycle de référence pour le dernier quart du dix-neuxvième siècle et pour la période qui suit la première guerre mondiale. Dans cet article, on trouvera l'identification des cinq cycles qui se sont produits au cours des deux premières périodes décennales du vingtième siècle. On a recouru aux méthodes très généralement acceptées du National Bureau of Economic Research pour les repérer.

Par suite de ces travaux, on dispose maintenant d'une chronologie complète des points de référence du cycle canadien de 1870 jusqu'à 1960. Cette chronologie peut servir à comparer la situation canadienne en matière de conjoncture économique à celle d'autres pays. Un premier examen en ce sens révèle que depuis la Confédération, les cycles canadiens sont une réplique de tous les cycles américains sauf un (1926–27), et qu'ils sont en avance, en moyenne, par moins d'un mois, sommets à sommets et creux à creux. Entre le Canada et le Royaume-Uni on trouve un parallélisme moins strict des cycles de même qu'une association chronologique plus faible.

Grâce à ce profil historique des cycles canadiens il est maintenant possible de vérifier l'hypothèse de Friedman-Schwartz sur la monnaie en tant que cause indépendante des fluctuations économiques à l'aide de données sur un deuxième pays et de comparer les résultats avec leur analyse bien connue sur les fluctuations américaines. Ce sera l'objet d'un autre article.

Type
Research Article
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 32 , Issue 3 , August 1966 , pp. 354 - 365
Copyright
Copyright © Canadian Political Science Association 1966

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Footnotes

*

This study is a by-product of a larger project concerned with money and business cycles in Canada, and the relationships between the American and Canadian monetary systems. Professor Philip Cagan gave valuable advice and encouragement during the early stages of the investigation. The author assumes entire responsibility for the tentative conclusions reached in this paper.

References

1 Viner, J., Canada's Balance of International Indebtedness, 1900–1913 (Cambridge, 1924)Google Scholar, and Studies in the Theory of International Trade (New York, 1937).Google Scholar

2 Meier, G. M., “Economic Envelopment and the Transfer Mechanism: Canada 1895–1913,” this Journal, 02 1953, 1–19.Google Scholar

3 Ingram, J. C., “Growth in Capacity and Canada's Balance of Payments,” American Economic Review, 03 1957, 93–104.Google Scholar

4 Borts, G. H., “A Theory of Long-run International Capital Movements,” Journal of Political Economy, 08 1964, 341-59.CrossRefGoogle Scholar

5 Taylor, K. W. and Michell, H., Statistical Contributions to Canadian Economic History, II (Toronto, 1931), 4.Google Scholar

6 Thorp, W., Business Cycle Annals (New York, 1926), 299 ff.Google Scholar

7 Chambers, E. J., “Late Nineteenth Century Business Cycles in Canada,” this Journal, 08 1964, 391–412 Google Scholar, and “Canadian Business Cycles since 1919: A Progress Report,” this Journal, 05 1958, 166-89.Google Scholar

8 The standard reference work is Burns, A. F. and Mitchell, W. C., Measuring Business Cycles (New York, 1946).Google Scholar See also Moore, G. H., ed., Business Cycle Indicators (New York, 1961), I.Google Scholar

9 Dates from 1955 to 1961 have been produced by the Department of Trade and Commerce, Ottawa.

10 Details of seasonal adjustment procedure and sources of all data are given in an Appendix.

11 It should be mentioned that all series based on the money stock or its components were explicitly excluded from use as indicators due to the over-all intentions of the project of which this study forms a part. See note *, above. The rate of change of the money stock is sensitive to business cycle fluctuations determined within our period. This series leads on average by 13.36 months with a standard deviation of approximately 5.77 months at the eleven reference cycle points between 1900 and 1918.

12 The diffusion index employs only fourteen monthly indices. The two series excluded are ton-miles of Railway Freight, and Gross Railway Revenue, for which only the profiles of specific cycle turning points were available. (See source of data in Appendix.)

13 Under ideal conditions in which all series had equal weight and together fully represented aggregate economic activity, then crossing of the 50 per cent expanding line of a historical diffusion index from below would coincide with a trough, or a peak when crossed from above. See Chambers, E. J., “Canadian Business Cycles since 1919: A Progress Report,” this Journal, 05 1958, 177.Google Scholar

14 These commentaries included the Monetary Times, Financial Chronicle, Labour Gazette, Dun's Review, and some issues of the Canadian Banker.

15 Cairncross, A. K., Home and Foreign Investment 1870–1913 (Cambridge, 1953), 42.Google Scholar

16 Thorp, W. L., Business Annals (New York, 1926), 300-7.Google Scholar

17 Barber, C. L., Inventories and the Business Cycle with Special Reference to Canada (Toronto, 1958), 75.Google Scholar

18 Some progress in exploring the avenues by which cyclical forces might be transmitted from the US economy to the Canadian have been explored by the following writers: Bryce, R. B., “The effects on Canada of Industrial Fluctuations in the United States,” this Journal, 08 1939, 373-86Google Scholar; Chambers, E. J., “Canadian Business Cycles and Merchandise Exports,” this Journal, 08 1958, 406-10Google Scholar; Rosenbluth, G., “Changing Structural Factors in Canada's Cyclical Sensitivity, 1903–1954,” this Journal, 02 1958, 21–43 Google Scholar; and, amongst others Malach, V. W., International Cycles and Canada's Balance of Payments, 1921–33 (Toronto, 1954).Google Scholar