The principal differentia of the Canadian economy are familiar. Because of the nature of her resources and her situation, Canada depends chiefly upon the production in quantity of a few staple commodities for export to those regions having less specialized resources and more diversified economies. Canada is thus subjected, willy-nilly, to a violent alternation of boom and depression by the fluctuation of demand in her foreign markets. Geography, moreover, has afflicted Canada with a transportation problem, which has two phases: in time of boom, the problem is how to obtain quickly more and cheaper transportation; in time of depression, how to pay out of her shrunken national income the heavy fixed costs incurred by the construction of transportation facilities.

The new system of government inaugurated in Newfoundland on February 17, 1934—Government-by-Commission—is a constitutional experiment of the utmost importance to the people of the country, and, moreover, of profound interest to the student of political science. It possesses distinctive features which are unique in even the long and varied constitutional history of the British Commonwealth of Nations.

The process of economic deterioration, which had been almost continuous in Newfoundland since 1920, culminated in an acute financial crisis in which the government of the Dominion found itself confronted with imminent bankruptcy. At this juncture, a Royal Commission was appointed on the advice of the governments of the United Kingdom, of Newfoundland, and of Canada, to investigate conditions in Newfoundland, and to issue a report on its financial situation. The Commission, under its chairman, Lord Amulree, examined hundreds of representative witnesses, and published, on October 3, 1933, an exhaustive, courageous, and admirably lucid Report.

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.

The past two decades embrace a period in which Canada has become established (since 1922) as the premier wheat exporting nation of the world; in which wheat prices touched the highest point (September, 1920) and the lowest depth (December, 1932) in Canadian grain trade history; in which centralized co-operative pool marketing of wheat was conducted for several years on a larger scale than that of any farm product in any country; and in which the federal government has experimented with policies in relation to the marketing and price movements of wheat ranging from established regulatory functions to monopoly handling through a government board and minimum price guarantees. These two decades include three periods of favourable prices and active export demand (1917-20, 1924-9, and 1936-7), with the intervening years characterized by distress prices and restricted foreign demand. Amid these fluctuating economic conditions of the wheat industry there has occurred significant experimentation with different marketing systems, involving shifting relationships between the organized producers, the organized private trade, and the provincial and federal governments.

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.

It would be presumptuous for a Canadian to comment critically on the affairs, of Newfoundland—particularly as a native of a country which has done its share of bullying a small neighbour and of a country which can scarcely point the finger of scorn on grounds of bad government. Charges of corruption heard in Newfoundland fall on attuned Canadian ears—and it would probably not be difficult to find specific instances of scandal in the history of government in Canada which would match those of Newfoundland.

Nevertheless a student of the economic history of both countries may be forgiven for reflections suggested by comparisons and contrasts. In common with other maritime regions, Newfoundland throughout her history has faced the sea, and she has been the last to feel the effects of the pull of the North American continent. The railroad from St. John's to Port aux Basques brought her in direct touch with North America viá Sydney. Canadian bankers assumed control in the island after the crash in 1894. With the turn of the century the steel mills of Nova Scotia began to draw on the iron mines of Wabana. While British industrialism penetrated Newfoundland in the construction of paper mills, it was significant that Cornerbrook on the west coast was sold to International. Industrialism, particularly as evident in transportation, linked Newfoundland more closely to the continent, to mention only the demands for coal and oil.

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.

Since the War imprecision has been the common characteristic of most statements on foreign policy by Canadian prime ministers. In this the prime ministers of Canada have not been unique. As Mr. Harold Nicolson has pointed out, though “the essence of a good foreign policy is certitude” and though “an uncertain policy is always bad” yet “on the other hand, parliamentary and press opposition is less likely to concentrate against an elastic foreign policy than against one which is precise. It is thus a grave temptation for a Foreign Minister under the democratic system to prefer an idealistic formula, which raises only intellectual criticism, to a concrete formula which is open to popular attack.”

Canadian political leaders have been vague about the principles of their foreign policy, not only because of a shrewd calculation of political interest (the fact that a forthright statement on foreign policy would lose more votes than it would gain) but also out of regard for the national interest. There are deep divisions in the Canadian nation—divisions arising out of race, religion, section. These divisions are likely to be deepened—over the short-run at least—by facing the Canadian people with the necessity of choosing between a number of clearly defined policies on external affairs. For Canadian foreign policy, as Mr. Mackenzie King has recently pointed out, is concerned with the problems which arise out of “the unparalleled complexity of our position as a member of the league, a member of the British Commonwealth of Nations and one of the nations of the American continent”.

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.