To understand the effect of the war upon the Canadian economy it is first necessary to examine briefly the position of the country on the eve of the struggle. By the midsummer of 1913 Canada had come to the end of a long period of expansion and prosperity. For seventeen years the country had been engaged in the construction of the immense capital facilities which stimulated and resulted from the rapid settlement of the Prairie Provinces. The construction of transcontinental railways, the building of new cities and towns in Western Canada, the improvement of waterways and harbours, and the provision of machinery and equipment for nearly 200,000 new farms constituted an uniquely large proportion of the total economic activity of the country. In 1912-13, nearly one-fourth of all the labour and productive facilities of the economy was either directly or indirectly engaged in the production of capital goods. The employment of these resources could not, of course, be financed entirely out of the current savings of Canadians. Much of the money was borrowed abroad. About one-half of the total capital invested in Canada during the pre-war wheat boom came from foreign sources. In 1913 capital imports rose to more than $500 million, a figure equal to almost one-fourth of the national income. Such huge external borrowings could not be continued indefinitely. The money was obtained from abroad for the purpose of enlarging the export capacity of the country and it was necessary at some time to slow down expansion to enable the use of the facilities for the production of increased exports.