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Recent Canadian Economic Policy: Some Alternatives

Published online by Cambridge University Press:  07 November 2014

H. C. Eastman
H. C. Eastman*
Affiliation:
Duke University
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Extract

Until the Canadian dollar was raised to parity with the American dollar in July, 1946, Canadian foreign exchange reserves had been maintained at a satisfactory level by an inflow of capital which offset the substantial current account deficit with the United States. After the appreciation, which was undertaken to insulate the domestic price level from rising prices abroad, the capital flow was reversed and the official liquid reserves diminished rapidly until the end of 1947. The weakness in Canada's balance of payments position was caused by the fact that her surplus on current account was smaller than the rate at which her foreign loans were drawn down. The governmental policies undertaken to correct the balance of payments disequilibrium combined with a high level of national income in the United States to decrease the deficit in the current account with the United States and to replenish the reserves in 1948 and 1949.

The rapid increase in the merchandise deficit with the United States, evident in the first six months of 1951, and the declining rate of capital import pointed to the possibility of a deterioration in Canada's foreign exchange position. It is thus opportune to examine the effect of the policies followed by the Canadian government in its attempt to deal with the balance of payments disequilibrium of 1947. An attempt is made in this paper to discover how much these policies, especially import controls, contributed to the solution of the problem.

Type
Research Article
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 18 , Issue 2 , May 1952 , pp. 135 - 145
Copyright
Copyright © Canadian Political Science Association 1952

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References

1 11–12 Geo. VI, c. 7.

2 Imports of oil, coal, farm machinery, and several small items were uncontrolled. Their value rose by $130 million in 1948.

3 The Agreement was signed on October 30, 1947. The Agreement and its Schedules of Tariff Concessions were put into effect on January 1, 1948 by Australia, the Belgium-Netherlands-Luxembourg Customs Union, France, the United Kingdom, the United States and Canada.

4 1948 Schedule I and II import figures were deflated by the wholesale index. For Schedule III imports, estimate in the Report on the Administration of the Emergency Exchange Conservation Act, Schedule III, 12 31, 1948 to June 30, 1949 (Dept. of Trade and Commerce) was used.Google Scholar

5 Import controls were costly in two ways. First, resources were consumed in the administration of the controls. Second, the controls removed some of the consumer's freedom of choice and decreased his welfare by making him take what he wanted less in place of what he wanted more.

6 This figure includes Investment in Inventories. Other Gross Private Capital Investment was 15 per cent of the Gross National Product. Gross Home Investment was 3 per cent of Gross National Product in 1933 and 16 per cent in 1939.

7 Schedule I contained consumption goods whose importation was banned, Schedule II contained consumption goods under quota and Schedule III contained capital goods and parts.

8 The disappearance of a number of firms (e.g. refrigerator manufacturers) upon the removal of the controls is evidence that some firms existed solely because of the controls. At least forty-two of the manufacturing firms employing ten or more people, which commenced operations in Canada in 1948, 1949, and 1950, were established because of the import controls or with the aid of the Import Control Division.

9 The cost of living index rose by only 1 per cent during 1949 and yet full employment was maintained. Thus it cannot be claimed that rises of 10 per cent per annum and more were required to maintain full employment since 1946.

10 Canada, House of Commons Debates, 1946, I, 766.Google Scholar

11 See Canada, House of Commons Debates, 1948, I, 323–73Google Scholar; W. T. G. Hackett, “The Bank, the Fund, and the Canadian Dollar,” D. C. MacGregor, “Dependence on Imports from the United States.“ and Courtland Elliott, “The Role of Capital Imports,” in Canada's Economy in a Changing World, ed. J. Douglas Gibson. Plumptre, A. F. W., What Shall We Do with Our Dollar? (C.I.I.A. Special Series, Toronto, 1948).Google Scholar Walwyn, A. G., “A Realistic Dollar vs. Overvaluation and Controls,” International Journal, III, spring. 1948.Google Scholar

12 Canadian trade with the United States was the following percentage of total Canadian trade:

13 February, 1952.

14 The Cost of Living Index rose rapidly during the first half of 1951 but has been steady since August. The Wholesale Prices Index has shown a very slight decline since July. Canada's deficit on merchandise trade with foreign countries, quite large during the first half of 1951, was converted into a surplus after the month of August. The merchandise deficit with the United States declined steadily from a peak of $90 million in April, 1951 to only $14 million in December because of a fall in imports.