Wars

1
Wars Between

• Canada from 1914 to 1945

2
Wars Between Canada in 1914

• By 1914, Canada largely has the geo-political
  shape it has now (with the exception of
  Newfoundland).
• Had just come through about 15 years of
  unprecedented growth although some slow down from
  1910 on.
• Exports a large portion of economic well being
  and most of those were raw materials (lumber,
  wheat, fish etc.).

3
Wars Between World War I

• Conflict lasted from 1914 to 1918. Canada engaged
  automatically as part of British Empire.
• 60,000 Canadian soldiers died a further 170,000
  were injured.
• WWI was not characterised by the degree of
  economic planning that was found in WWII.
• Initial impact was disruption and loss of access
  to capital markets.

4
Wars Between WWI

• Initial impact was disruption and loss of access
  to capital markets By 1916, war effort reaches a
  crisis in the British Empire as soldiers at front
  run out of shells (Munitions Crisis).
• Result was creation of Imperial War Board under
  Joseph Flavellea Canadian industrialist.
• Initially, Canadian firms did not benefit from
  the new structure of war time supply as they were
  not always efficient.

5
Wars Between WWI

• Efficiency did improve and Central Canadian firms
  did receive war contracts.
• Ammunition and shrapnel in particular were
  manufactured in Canada and shipped to the
  European front.
• There were also significant demands for Canadian
  foodstuffs--particularly wheat but also products
  such as bacon that had a long shelf life.

6
Wars Between WWI

• In terms of wheat, Canada was selling all it
  could produce and was urged to produce more
  (European supplies were disrupted).
• Net impact may have been an overexpansion beyond
  what should have been the wheat frontier.
• Other significant area of economic impact during
  the war was the loss of access to capital markets
  (London closed for non-war lending New York just
  emerging to position of world leadership).

7
Wars Between WWI

• Dominion government still required infusions of
  foreign capital to finance railways (there were
  now 3 transcontinental lines in existence or
  building stages) and other infrastructure.
• Gold Standard was suspended during the War.
• There were two significant changes to government
  finance during the First World War the floating
  of bond issues domestically and the introduction
  of income tax.

8
Wars Between WWI

• The first bond issue was launched without much
  hope of a strong take up. The sense was that
  domestic savings were not sufficient to raise
  capital domestically.
• This sense was wrongnote that there were no
  National Accounts yetthe issue sold out very
  quickly. Hence more bonds were issued.
• The advantage of issuing bonds is that it avoids
  recourse to the printing press the disadvantage
  is that future generations pay.

9
Wars Between WWI

• Income tax was introduced as a temporary measure
  in 1917. The rates were modest and the stated
  intent was to finance the War effort.
• Obviously, income tax remains in place and is a
  major source of government revenue.

10
Wars Between WWI

• There were significant social changes during the
  war women entered the labour force in
  unprecedented numbers and were able to vote by
  the end of the war.
• In addition, the Russian Revolution, which led to
  the establishment of a major Communist country,
  began in 1917.
• There were also significant technological
  improvementsairplanes and automobiles improved
  significantly in design and capabilities.

11
Wars Between the end of WW I

• At the end of the War, the intent was to move
  back to a pre-War footing as soon as possible.
• As a result, the army was demobilised, and
  contracts cancelled relatively quickly, and with
  no thought to the cumulative impacts on the
  economy.
• There was a resulting significant shock to the
  domestic economy.

12
Wars Between the end of WWI

• Returning soldiers and laid off workers resulted
  in unemployment and labour unrest.
• The practice of deploying all troops from the
  same town or region together at the front also
  meant the end of the War. revealed severe local
  losses in the adult male labour force a
  particular hardship in small, rural communities.

13
Wars Between the end of WWI

• In the international context, there were 12 new
  countries and 13 new currencies (the new Soviet
  Union is the extra currency).
• Infrastructure such as railways no longer matched
  political boundaries.
• The land and infrastructure in Europe was
  disrupted due to the warfare.

14
Wars Between the end of WWI

• The reparations payments imposed by the Treaty of
  Paris were punitivethe vanquished (losers) must
  pay for the War.
• Hence, there was a crippling financial burden on
  some states and even the victorious were deeply
  in debt.
• In addition, the American withdrawal from the
  world stage, and their reluctance to forgive war
  debts incurred by their allies, worsened the
  financial situation.

15
Wars Between the end of WWI

• There were several instances of hyperinflation
  between 1918 and 1921 with the German case being
  the most famous.
• Politically, there was concern that the Russian
  revolution would spread.
• All economies were negatively affected by the
  loss of labour, although in WWI there was more of
  a limitation of casualties to the military than
  was the case in the Second World War.

16
Wars Between the end of WWI

• The use of mustard gas, and some advances in
  medical treatment meant that there were a higher
  number of invalided soldiers and there was an
  obligation to provide pensions.
• The weakened state of the population meant that
  all were susceptible to the Spanish influenza
  epidemic which struck in 1919.

17
Wars Between the end of WWI

• Back in Canada, labour unrest culminated in the
  Winnipeg General strike of 1919 .
• Women generally left the paid labour force at the
  end of the War.
• Markets for wheat began to soften as other areas
  came back into production Poor weather also
  affected the agricultural sector.

18
Wars Between the end of WWI

• The enhanced efficiency gained in war contracts
  did carry over into peace time production.
• However, real output in 1921 was lower than that
  in 1911 and lower in per capita terms than it
  had been in 1905 (Norrie p 263).

19
Wars Between the 1920s

• On the world stage, American capital did not flow
  abroad to the same degree as British capital had
  prior to the War.
• The Dawes plan, adopted after the periods of
  hyperinflation, did offset some of the negative
  impacts of the reparations.
• The theory was that Dawes plan payments would
  flow back to France and Britain from Germany and
  Italy so that France, and particularly Britain,
  could pay their war debts to the Americans.

20
Wars Between the 1920s

• The Gold Standard was re-assumed by Britain in
  1926 Canada also re-assumed it but effectively
  abandoned it in 1928.

21
Wars Between the 1920s

• The 1920s see a shift from Britain to the US as
  the major economic partner in terms of trade and
  foreign investment.
• Prairies did not fare well after wheat prices
  started to fall (1920/1923) but improved later in
  the decade.
• The adoption of gasoline engines meant new
  capital expenditures and improved productivity in
  the agricultural sector.

22
Wars Between the 1920s

• There continued to be railway financing
  issuesthe Canadian National was formed out of
  the Grand Trunk Pacific and the Canadian Northern
  in 1922.
• The takeover was necessary due to the size of the
  loan guaranteesdefault would have bankrupted BC
  and Manitoba.
• Government liabilities did not end with
  nationalisation it merely internalised the
  problem.

23
Wars Between the 1920s

• Maritimes continued to stagnate.
• Central Canada continued to grow benefitting
  from the manufacture of new consumer durables
  such as automobiles and refrigerators and from
  what Norrie refers to as the insatiable American
  demand for newsprint.
• BC also benefitted from the export demands for
  pulp and paper and minerals.

24
Wars Between the Collapse

• Growth continued until 1929 and the collapse of
  the American stock market.
• From 1929 until 1932, the Canadian economy
  spiralled downward.
• Fixed exchange rates and the Gold Standard
  transmitted the economic contraction between
  nations the reliance of the Canadian economy on
  exports exacerbated it.

25
Wars Between the Collapse

• Although much of Canadas trade was with the
  United States, the largest single commodity
  export was wheat and it went to Britain.
• The close relation with the United States also
  left Canada particularly vulnerable.

26
Wars Between the Collapse

• A first reaction by many countries to the
  contraction was to enact protective tariffs.
• Canada was adversely affected by such tariffs
  because the small open economy depended on easy
  access to foreign markets for prosperity.
• The Hawley-Smoot tariffs imposed by the US in
  1930 were particularly damaging as they affected
  areas such as pulp and paper which had expanded
  significantly in the previous decade.

27
Wars Between the 1930s

• The Prairies, with their dependence on one
  commodity, were particularly hard hit.
• Deflation meant that even if crops were decent in
  terms of yield, the price received for them was
  not.
• Prices for wheat fell by as much as two thirds.

28
Wars Between the 1930s

• The Maritimes were not affected as much as other
  regions in part because they had not shared as
  much in the prosperity of the 1920s as had other
  regions.
• Ontario and parts of Quebec (the degree of
  reliance on pulp and paper was key) suffered less
  because of the diversified economy.
• The absence of structured social welfare schemes
  meant that families had to divest themselves of
  all their wealth before receiving minimal aid.

29
Wars Between the 1930s

• In addition, there was no public medicine.
• Initial attempts by the government to spend
  countercyclically were offset by the size of
  government and the magnitude of the Depression.
• After some initial countercyclical spending, the
  government retreated to a lower level of spending
  which may have slowed the recovery.

30
Wars Between the 1930s

• Unemployment reached over 25 during the early
  1930s.
• Single men were not eligible for Relief and often
  travelled extensively looking for work.
• Work camps were established to ensure that this
  volatile group were not too disruptive but the
  labour was very often not productive.

31
Wars Between the 1930s

• This concern was not ill-founded there were
  strikes in Vancouver in 1935, and the
  On-to-Ottawa trek saw large numbers of employed
  heading to Ottawa
• While they were stopped in Regina, there were
  riots in a number of locations
• The work camps established after the election in
  the fall of 1935 were less draconian than the
  earlier ones.

32
Wars Between the 1930s

• Canada (and other countries) could not borrow
  from other countries so could not look elsewhere
  for investment or loans to help ease domestic
  conditions.
• However, Canada was instrumental in negotiating a
  (British) Commonwealth trading agreement which
  did provide an outlet for some exports.

33
Wars Between the 1930s

• Recovery began seriously in 1935 with the easing
  of American tight money policy and the New Deal
  in the United States.
• There is some debate on whether it was the
  spending or the easing in monetary conditions
  that fuelled the recovery.
• Recovery was uneven in Canada as it depended on
  recovery of the appropriate sector in the United
  States.

34
Wars Between the 1930s

• In Canada, the Bank of Canada was formed in 1935
  which provided a focus for domestic monetary
  policy.
• The reappearance of the strong threat of war, and
  subsequent rearmament in 1938/39 marked the end
  of the Depression in Canada.

35
World War II

• World War II lasted from 1939 to 1945
• Casualties were lower than WWI 34,000 died.
• Unlike WWI, Canada declared war on Germany
  independently of Britain.
• Also unlike World War I, Canada was active in
  both Europe and the Pacific

36
World War II

• The United States joined World War II after the
  bombing of Pearl Harbour in 1941.
• World War II arguably had more consequences on
  the civilian population bombings, the Holocaust
  Japanese internment prisoner of war camps the
  atomic bombs.

37
World War II

• In terms of the economics, World War II was much
  more a planned operation than was World War I.
• The (federal) government took a more active role
  in procurement, and in guiding the economy in
  terms of prices and commodities produced

38
World War II

• The end of the war was also much more carefully
  planned.
• Firms were given incentives to re-tool to
  domestic production.
• The labour force transition was more carefully
  managed.
• Hence, there was not the significant downturn
  seen at the end of WWI.