Canada's Balance of International Indebtedness, 1900-1913: An Inductive Study of the Theory of International Trade [New edition.] 9780771097867, 0771097867

Table of contents :
Cover
Copyright
Contents
Introduction to the Carleton Library Edition
Preface
Chapter I: Method and Scope of the Present Study
The a priori Character of the Classical Theory of International trade
The Place of Induction in the Theory of International Trade
The Scope of the Present Study
Canada, 1900 to 1913, the Field of the Present Study
Part I: The Canadian Balance Of International Indebtedness
Introductory
Chapter II: The Commodity Balance of Trade
The Canadian commerce statistics
Methods of compilation
Methods of computing values
Accuracy of the statistics
Omissions and inclusions
Fiscal Years vs. Calendar Years
Imports and Exports of Gold Coin
The Commodity Balance of Trade
Comparison with Earlier Period
Chapter III: Non-Commercial Items in the International Balance of Indebtedness
Introductory
Immigrants’ capital
Capital per capita of immigrants from the United States
Capital per capita of immigrants from other countries
Capital Taken out
of Canada by Emigrants
Emigration from Canada to the United States of natives of the United States
Emigration of persons of British nativity
Emigration of Canadians to the United States
Emigration from Canada of natives of countries other than the United States and Great Britain
Total emigration from Canada
Capital taken out by emigrants
Non-Commercial Remittances From and To Canada
The balance of Non-Commercial Transactions
Chapter IV: Freight, Insurance, and Tourist Expenditures
Introductory
Freight charges
Methods of Estimating Freight Charges
Freight Charges on Imports from Great Britain
Freight Charges on Imports from other Countries
Freight Chargers On exports
Insurance Payments Sent Abroad from Canada
Insurance Payments by Other Countries to Canada
Expenditures by Tourists in Canada
Expenditures by Canadian tourists
Sundry items
Chapter V: Capital Investments, Interest Payments,and the Canadian Balance of International Indebtedness
Canadian Investments Abroad, and Interest Receipts Therefrom
Preliminary Balance of International Indebtedness
Interest Rates on Foreign Capital Invested in Canada
Investments of Foreign Capital in Canada, and Interest Payments by Canada
The Balance of Service Transactions
The Canadian Balance of International Indebtedness
Comparison of Present Calculation with Coats’s Calculation
Chapter VI: Investments of Foreign Capital in Canada—A Verification of the Estimates Made in Chapter V
Nature of the problem
British Investments in Canada
British Public Investments in Canada
British Private Investments in Canada
British Miscellaneous Investments in Canada
British Insurance Company Investments in Canada
American Investments in Canada
American Investments in Canadian Securities
American Industrial, Mining, Land, and Timber Investments in Canada
Investments of American Insurance Companies in Canada
Investments in Canada by Continental Europe
Continental Holdings of Canadian Securities
Miscellaneous Investments in Canada by Continental Europe
Part II: The Mechanism of Adjustment of the Canadian Balance of International Indebtedness
Introductory
Chapter VII:Exchange Rates and Gold Movements
Exchange Rates
Canadian Dealings in Foreign Exchange
Gold Movements
Chapter VIII: The Canadian Banks and the Adjustment of International Balances
The "Cash Reserves" of the Canadian Banks and Gold Movements
The "Outside Reserves" of the Canadian Banks and Gold Movements
The Method of Operation of the Outside Reserves
Chapter IX: Changes in Relative Price Levels and the Adjustment of Trade Balances
A. Controversial Points in the Deductive Theory
The Theories of the Earlier Writers
Modern Criticisms of Mill’s Theory
Sectional Price Levels
Chapter X: Changes in Relative Price Levels and the Adjustment of Trade Balances
B. Inductive Verification
Introductory
Price levels in Different Countries
Prices in Canada Compared with Prices in Great Britain
Prices in Canada Compared with Prices in the United States
Sectional Price Levels
Domestic, Import, and Export Commodity Prices
Export Prices
Import Prices
Domestic Commodity Prices
Prices of Services
Coats’s Explanation of the Relative Rise in Canadian Prices
Summary
Chapter XI: The Commodity Balance of Trade and the Adjustment of the Balance of Indebtedness
The Commodity Balance of T
rade
Restrictive Effect of Capital Borrowings on Exports
Commodity Imports and the Balance of International
Indebtedness
Capital Borrowings and Imports of Capital Goods
Chapter XII: Triangular Adjustment of the Balance of Indebtedness
Triangular Adjustment of the Balance of Indebtedness
Triangular Adjustment Through Imports
Triangular Adjustment
Through Exports
Chapter XIII: Some Economic Consequences of the Capital Borrowings
Influence of the Capital Borrowings on the Terms of International Exchange
Capital Borrowings and the Distribution of Income in Canada
Capital Borrowings and Prosperity
Bibliography
Index

Citation preview

Canada’s Balance 076 ?j 8 of International Indebtedness, 1900-1913

1 10 1

1906

06

FOR USE, IN ARCHIVES ROOM ONLY

Canada’s Balance of International Indebtedness, 1900 -1913 A N IN D U C T IV E S T U D Y IN T H E T H E O R Y O F IN T E R N A T IO N A L T R A D E

J a c o b Viner

W ith an Introduction by H. C. E astm an

The Carleton Library No. 86 M cC lelland and Stew art L im ited

TH E CARLETON LIBRARY A series of Canadian reprints, original works and new collections of source material relating to Canada, issued under the editorial supervision of the Institute of Canadian Studies of Carleton University. Ottawa. D IR E C T O R O F T H E

Davidson Dunton

GEN ERAL

IN S T IT U T E

E D IT O R

Michael Gnarowski

E X E C U T IV E

V S’

E D IT O R

James H. Marsh

E D IT O R IA L B O A R D

B. Carman Bickerton (History) Dennis Forcese (Sociology) David Knight (Geography) J. George Neuspiel (Law) Thomas K. Rymes (Economics) Derek G. Smith (Anthropology) . Michael S. Whittington (Political Science) © McClelland and Stewart Limited, .1975 A LL

R IG H T S R E S E R V E D

ISBN 0-7710-9786-7 This volume was first published in 1924 by Harvard University Press from the income of the David A. Wells fund. The Canadian Publishers McClelland and Stewart Limited 25 Hollinger Road. Toronto 374 Printed and bound in Canada

CONTENTS I n t r o d u c t i o n t o t h e C a r i .e t o n L i b r a r y E d i t i o n P r e f a c e ...........................................................................................................

ix XVII

IN T R O D U C T IO N CH A PTER I M

S c o pe of t h e P r e se n t Study T he o priori character of the classical theory of international trade, 3. T he place of induction in the theory of international trade, 5. The scope of the present study, 9. C anada, 1900 to 1913, the field of the present study, 11.

ethod and

3

PART I T H E CA N A D IA N BA LA N CE O F IN T E R N A T IO N A L IN D E B T E D N E S S I ntroductory

21

C H A P T E R II T h e C o m m o d it y B a l a n c e o f T r a d e T he Canadian commerce statistics, 25: M ethods of com pilation, 25; M ethods of com puting values, 26; A ccuracy of the statistics, 27; Omis­ sions and inclusions, 28; Fiscal years vs. calendar years, 30; Im ports and exports of gold coin, 32. T he com modity balance of trade, 35. Comparison with earlier period, 36.

24

C H A P T E R II I N

o n - C o m m e r c ia l of

I t e m s i n t h e I n t e r n a t io n a l B a l a n c e I n d ebtedness Introductory, 39. Im m igrants’ capital, 41: C apital per capita of immi­ grants from th e U nited S tates, 41; C apital per capita of im m igrants from other countries, 44; C apital brought into C anada by im m igrants, 45. C apital taken o ut of C anada by em igrants, 45: Em igration from C anada to the United States of natives of the United States, 45; E m i­ gration of persons of B ritish nativity, 50; Em igration of C anadians to

39

CONTENTS

th e United States, 53; Emigration from C anada of natives of countries other than the United States and G reat B ritain, 54; T otal emigration from C anada, s s ; C apital taken o ut by em igrants, 56. Non-commercial rem ittances to and from C anada, 57. T he balance of non-commercial transactions, 62.

C H A P T E R IV F r e ig h t , I n s u r a n c e , a n d T o u r is t E x p e n d it u r e s . . . Introductory, 63. Freight charges, 64: M ethods of estim ating freight charges, 64; Freight charges on im ports from G reat B ritain, 71; On im­ ports from the United States, 76; O n im ports from other countries, 77; On exports, 79. Insurance paym ents sent abroad from C anada, 80. In ­ surance paym ents by other countries to C anada, 82. Expenditures by tourists in C anada, 83. Expenditures by C anadian tourists abroad, 85. Sundry items, 87.

CH A PTER V C a p it a l I n v e s t m e n t s , I n t e r e s t P a y m e n t s , a n d t h e C a ­ n a d ia n B a l a n c e o f I n t e r n a t io n a l I n d e b t e d n e s s . . Canadian investm ents abroad, and interest receipts therefrom , 89. Prelim inary balance of international indebtedness, 9?. Interest rates on foreign capital invested in C anada, 94. Investm ents of foreign capital in C anada,and interest paym ents thereon by C anada, 100. The balance of service transactions, 103. T he Canadian balance of interna­ tional indebtedness, 1900 to 1913, 103. Comparison of present calcula­ tion w ith C oats’s calculation, 106.

C H A PT E R VI I nvestm ents

o f F o r e ig n C a p it a l in C a n a d a — f i c a t i o n o f t h e E s t im a t e s m a d e i n C h a p t e r

A V e r i­ V . . . N ature of the problem , 108. British investm ents in C anada, 109: B rit­ ish public investm ents in C anada, 109; British private investm ents in C anada, 120; British miscellaneous investm ents in C anada, 123; B rit­ ish insurance com pany investm ents in C anada, 125; T otal British investm ents in C anada, 126. American investm ents in C anada, 127: American investm ents in C anadian securities, 127; American indus­ trial, m ining, land, and tim ber investm ents in C anada, 129; Ameri­ can insurance com pany investm ents in C anada, 133. Investm ents in C anada by continental Europe, 135: C ontinental holdings of Canadian securities, 136; M iscellaneous investm ents in C anada by continental Europe, 137. T otal foreign investm ents in C anada, 139.

CONTENTS

PART II T H E M E C H A N ISM O F A D JU S T M E N T O F T H E CA N A D IA N B A LA N C E O F IN T E R N A T IO N A L IN D E B T E D N E S S I n t r o d u c t o r y ............................ ' ............................................................................ 1 45

C H A P T E R V II E

xch ange

R

ates

G

and

M

old

o v e m e n t s

................................. 1 4 7

Exchange rates, 147: C anadian dealings in foreign e x c h a n g e ,.^ . Gold m ovem ents, 156: Fluctuations in the C anadian stocks of m onetary gold, 159.

C H A P T E R V III T

he

C

a n a d ia n

t io n a l

B

B

an k s and

a l a n c e s

th e

A

d ju stm en t

of

In

tern a

- .

......................................................................................... 1 6 4

T he cash reserves of the C anadian banks and gold m ovements, 164. T he outside reserves of the C anadian banks and gold m ovem ents, 177. T he method of operation of the outside reserves, 184.

C H A P T E R IX C h a n g e s in R e l a t i v e P r i c e L e v e l s a n d t h e A d ju s t m e n t

of

T r a d e B a la n c e s : A . C o n t r o v e r s ia l P o in ts in t h e

D e d u c tiv e

T h e o r y ................................................................................... 1 9 1

T he theories of the earlier w riters, 191. M odern criticisms of M ill’s theory, 202. Sectional price levels, 206.

C H A PT E R X C

h a n g e s in of

T

rade

R

e l a t iv e

B

P

alan ces

:

r ic e

L

evels and th e

B . In

d u c t iv e

V

A

d ju stm en t

e r if ic a t io n

.

.212

Introductory, 212. Price levels in different countries, 215: Prices in Canada compared with prices in G reat B ritain, 221; W ith prices in the United States, 223. Sectional price levels, 227: Domestic, im port, and export commodity prices, 229; E xport prices, 231; Im port prices, 234; Domestic com modity prices, 238; Prices of services, 241. C oats’s ex­ planation of the relative rise in Canadian prices, 248. Sum m ary, 253.

CONTENTS

CH A PTER X I T h e C o m m o d ity B a l a n c e o f T r a d e a n d t h e A d j u s t m e n t

of

th e

B a la n c e

o f

I n d e b t e d n e s s ............................................. 2 5 6

T he commodity balance of trade, 256. R estrictive effect of capital bor­ rowings on exports, 261. Com modity im ports and the balance of in­ debtedness, 274. C apital borrowings and im ports of capital goods, 277.

C H A PT E R X II T

r ia n g u l a r n ess

A

d ju stm en t

of

th e

B

alance

of

In

debted

­

.................................................................................................................................

Triangular adjustm ent of the balance, 280; T riangular adjustm ent through im ports, 284; Through exports, 292.

C H A PT E R X III S o m e E c o n o m ic C o n s e q u e n c e s o f t h e C a p i t a l B o r r o w ­

in g s

Influence of the capital borrowings on the term s of international ex­ change, 295. — On the distribution of income in C anada, 299. — C apital borrowings and prosperity, 302.

295

B i b l io g r a p h y

3°9

Index

3*5

. . .

Introduction to the C a rleto n L ib ra ry Edition

T he nam e o f Jaco b V iner was o ne o f th e m ost illustrious in eco­ nom ics during his long life-tim e. It lives on in his scholarly w orks m any o f w hich w ere sem inal contributions o r constituted m ajor advances in econom ic theory and th e history o f econom ic thought. S om e o f his w orks are definitive in their field. V iner was born in M ontreal in 1892. H e received a B .A . from M cG ill U niversity w here Professor J. C. H em m eon, am ong others, taught him econom ics. H e then studied at H arvard under th e influ­ ence an d guidance o f Professor F. W . Taussig w ho was then near­ ing the conclusion o f his career in which he had developed th e m ost com plete statem ent o f classical econom ics. As so m any intellectuals w ho left C anada at the tim e, V iner did n o t return. In 1916, h e went on to teach at th e U niversity o f C hicago w here he also edited the Journal o f P olitical E conom y, from 1929 to 1946. H e jo in ed the faculty o f P rinceton U niversity in 1946, from which he retired in I960, but he continued his scholarly activities in Princeton until his death in 1970. V iner’s contributions to econom ics w ere recognized by th e A m erican Econom ics A ssociation which elected him Presi­ den t in 1939 and aw arded him th e Francis A . W alker M edal in 1962. T h irte en u n iversities g av e him h o n o rary d eg rees, am ong them Q ueen ’s, M cG ill and T o ro n to . H e received m any o th er hon­ ours. V iner’s w ritings reflect an interest in C anadian econom ic m atters th at declined w ith th e years o f his absence from C anada. C anada's B alance o f International Indebtedness, 1900-1913, his m ajor work on C an ad a, published in 1924, began as his P h.D . thesis. T here­ after specifically C anadian questions w ere peripheral to his interests though he participated in som e conferences relating to C anadian subjects under various auspices. H e w rote a b rief on th e tariff for th e Province o f M anitob a and an o th er on th e debt problem o f A lberta during the I930’s. His concern for objectivity led him to preface the first A lan B. P launt M em orial L ecture (1958) at C arle­ ton U niversity, for which he had chosen C anadian-A m erican rela­ tions as a topic, w ith the declaration th at, w hile he had an abiding affection for his native land, he had affection also for the U nited States to w hich, in add ition , he felt obligation. W hile the foundations o f V iner’s greatness w ere his analytical pow er, his erudition and his exactness o f ju d gem en t, his personality extended his influence. In his years at C hicago, he had th e reputa-

.V

CA S A DA S BA LA N C F O F TRA DF

lion o f a form idable character, because o f the standards im posed on his students by his exem plary com m and o f econom ic theory and lit­ erature, his concern for intellectual rigour, his dialectic and exposi­ tory pow ers and th e severity with which he treated inadequate per­ form ance. His g rad u ate course in econom ic theory was reputed to be th e best such co u rse given in th e U n ited S tates, p erh ap s th e w orld, in the nineteen thirties. T he direct stim ulus th at V iner gave tirelessly to learning and research was directed at colleagues as well as students. Stories abound o f the vigour o f V iner's discussions, o f how the halls o f the Social Science R esearch Building at C hicago w ould resound on occasion as V iner debated w ith others, often with Frank H . K night, som e m ajor p oint o f econom ic theory, perhaps w hether econom ies th at are external to a firm m ust be internal to an o th er firm in the sam e or an o th er industry, and the im plications o f the result. Legend has it to o th at Ph.D . candidates had difficulty both in avoiding this subject and in dealing with it. A t P rin c eto n , w h ere he sp e n t a n o th e r very p ro d u ctiv e p erio d , V iner w as especially celebrated for his g rad u ate course in the history o f econom ic doctrine in which his scholarship, his sense o f the conti­ nuity o f thought and his love o f know ledge for its ow n sake were ap p aren t and contagious. A t this tim e too, his interests extended further beyond his principal discipline into th e history o f social and religious thought; into general intellectual history. V iner’s help to the scholarship o f others cam e from far m ore than classroom teaching and debate. D espite th e im m ense burden o f his own w ork, throughout his life he was unstinting in the tim e he w ould devote to giving others th e benefit o f his unique erudition, analytical pow ers and experience. R esearch and teaching w ere not V iner's only professional activi­ ties. H e w as also interested and involved in questions o f econom ic policy. H e w rote and gave public testim ony on a host o f practical m atters. H e w rote on the tariff, on the organization o f w orld trade, taxes, public debt, reparations and the transfer problem , banking legislation, credit control, an ti-trust, international m onetary o rg an i­ zation, international lending, econom ic developm ent, defence and yet m ore. V iner’s views w ere not only offered, they w ere sought: he was an influential econom ic advisor in W ashington. H e w rote th at he had a “ faithful adherence to the m odes o f thought and the values o f 19th century free-trade liberalism ” and it is certain th at his views and advice w ere invariably based on these principles. V iner w as a vigorous exponent o f liberal views, but he was not doctrinaire. His prescriptions for specific problem s w ere influenced by concern that theory, the intellectual basis for m aking decisions, should take into

C A R L ET O N LI BRA RY INTRODUCTI ON

XI

account th e com plexity o f reality. His practical advice was guided by a sense o f balance and realism as to the use th at policy m akers could extract from econom ic theory. T his is discussed in his Presi­ d en tia l A d d ress to th e A m erican E co no m ic A sso ciatio n , " T h e Short View and th e Long in E conom ic Policy” (1939). H e also had an aw areness o f the lim itations o f theory. In 1951, shortly after his periods o f m ost active involvem ent in advising on policy, despite th e future progress in econom ic theory th at he foresaw , he put this p oint in an extrem e form : “ It seem s th at th e old [classical] theory w as sufficiently elastic, especially through its m onetary phases, to absorb w ithout friction the K eynesian contributions, and th at it is now on the verge o f system atic rehabilitation. D espite my belief in its m erit and its relevance during the period o f its dom inance, I am convinced, how ever, th at it w ould be a m istake to carry its rehabili­ tation so far as to claim for it, even in its im proved and m odernized form , adequacy as a theory to guide policy in the m odern-day w orld” . V iner's com m and o f theory an d sense o f its lim itations gave his advice on pressing problem s such great practical value that he was sought o u t at the highest level by th e U nited States T reasury during th e hey-day o f the N ew D eal and during th e Second W orld W ar though V iner's basic philosophy was not then in fashion. V iner was a renow ned teacher, a reputed adviser, but his great­ ness lay in his scholarship. T he breadth o f his know ledge and inter­ ests and his versatility were rem arkable. His 1931 article on “ Cost C urves and Supply C urves" was a definitive contribution to the pure theory o f th e firm . Its fam ous error, identified by his draughts­ m an, in draw ing the long run envelope curve did not lessen its im pact, but added at the tim e an elem ent o f fun at th e expense of th e otherw ise infallible V iner and later entered the folk-lore of econom ists som e o f w hom have at tim es been com forted by its rem em berance. A nother article, “ T he U tility C oncept in Value T heory and Its C ritics” (1925) w ould today be considered in the category o f history o f econom ic thought o f a very technical sort. He w rote articles on m ajor w riters, au th o ritative owing to his scholar­ ship and uniquely structured in th e balance o f considerations o f theory, historical antecedents and im plications for policy. “ A dam Sm ith and Laissez F aire” (1927), “ B entham and Mill: T he U tili­ tarian B ackground” (1948), “ M arshall's Econom ics, in R elation to the M an and His T im es” (1940), am ong others, are on m ost univer­ sity reading lists. T he theory o f international econom ics was the field o f V iner's principal contributions. H e w rote m any articles and several books in th e p u re th eo ry o f trad e an d in te rn atio n a l m o n etary th eo ry . H e developed theory to apply to policy problem s. H is first book. Dum p-

Ml

C A S ADA S BAL A X C E O F T RADE

ing: A Problem in International Trade (1923), is the classical th eo ­ retical and institutional study o f th e subject. T he analysis developed there sets out th e cases and obtains all the im portant results. It dif­ fers from present m ethod o f analysis only in greater use o f average rath er than m arginal'conditions. H is m ost celebrated book in the field o f policy oriented international trade theory is The C ustom s U nion Issue (1950) in which he m ade the crucial contribution to the understanding o f discrim inatory tariff reduction by distinguishing betw een its trade creating an d its trad e diverting effect. T his w ork, which thus analyzed th e effect o f tariff discrim ination on p ro du c­ tion, inspired a great deal o f very fruitful research by others. T he principal contribution o f this later work has been to indicate that g ain s m ay also arise from such ta riff re d u ctio n s b ecau se th ese increase efficiency in consum ption. T hese gains are a m ore conjec­ tural m atter than the production effects. V iner also w rote on In ter­ national Trade and E conom ic D evelopm ent ( 1953). T here are few fields in international econom ics to which Viner did not co n tribu te significantly. But one w ork stands out: his m o nu ­ m ental Studies in th e Theory o f International Trade (1937), a his­ tory o f chiefly English thought in international econom ics from m edieval to m odern tim es w ith em phasis on th e period from the classical econom ists onw ard. It is not an antiquarian piece, but an evaluation o f th e views o f earlier w riters in term s o f m odern eco­ nom ic know ledge th at reveals an astonishing m astery o f th e litera­ ture. Its pages are studded with insights into th e thoughts o f others and w ith independent theoretical contributions, som e o f which are derived, o f course, from V iner's earlier w orks. An instance o f the latter is the w ell-know n analysis o f th e relation o f types o f im perfec­ tions in th e labour m arket to presum ptions o f gains from free trade. T his early, incisive application o f th e theory o f th e second best co m es from V in er's review (1932) o f M a n o ile sc o ’s b o o k . T his superb Studies, a m odel for studies o f the evolution o f econom ic theory, rem ains th e definitive w ork in its field. C anada's B alance o f International Indebtedness, 1900-1913 is also o ne o f V iner's m ajor w orks. T hough based on his doctoral thesis under T aussig, it was published only in 1924 and was by no m eans his first publication. Taussig had developed the classical theory o f adjustm ent in. the balance o f paym ents in the tradition o f J. S. Mill and H enry T ho rn to n, but he believed that a theory w ith­ out inductive verification did not constitute real know ledge. H e and his students engaged in case studies o f the adjustm ent process in various countries. T he best know n o f these studies in ad d ition to T aussig's own for th e U nited States, are J. H, W illiam ’s study of A rgentine experience under a p ap er standard from 1880 to 1900,

C A RL E TO N L IB RA RY INTRODUCTI ON

MU

W . H. W hite for France 1880-1913, but especially V iner’s C ana­ d a's Balance. L ittle em pirical work on th e transfer process has been d on e since. T he purpose o f V iner's study was to test th e classical theory of th e m echanism o f adjustm ent in th e balance o f international pay­ m ents under a gold standard. C an ad a in th e period from 1900 to 1913 was an ap p ro priate case for study because its balance o f pay­ m ents show ed a huge change during th at period. It shifted from no net capital m ovem ent at its inception to a capital inflow th at was very large w hether m easured as a p roportion o f C anadian trade or o f n atio n al incom e. W h at m echan ism h ad b ro u g h t a b o u t this change? A s w as to becom e characteristic o f so m uch o f his w ork, V iner included in his book a careful analysis o f econom ic doctrine on the subject o f his research. H e established th at M ill’s theory descended from T ho rn to n , but that R icardo believed an adjustm ent in the balance o f paym ents to a capital flow could occur ow ing to “shifts in relative d em an d " w ithout a gold flow and a change in the term s o f trad e. V in e r'h im se lf a d h ere d to th e classical th eo ry ag ain st R icardo, though he recognized th at part o f th e adjustm ent might take place directly by an increase in expenditures on im ports and exportables, because th e loan increased th e incom e o f the borrow ­ ing country. T hus p art o f the loan w ould be transferred directly w ithout a change in the term s o f trade. V iner assum ed th at the m arginal propensity to spend on im ports and on exportables w ould be equal to th eir average propensity and he left out the changes in expenditures caused by the incom e change ow ing to financing the loan in the lending country. T hus V iner stated only part o f the correct form ulation o f the classical transfer m echanism w hich is that the transfer will be exactly effected w ithout gold Hows and price changes if the sum o f th e p ro po rtion s o f expenditure change falling on th e tw o co u ntries’ export goods is equal to unity. In any event, he w ould not have considered this outcom e to be likely and w ould have adhered to th e necessity for a change in relative prices. V iner’s first task was to establish the facts and he laboriously com posed estim ates o f the balance o f paym ents for C anada for that period. T he reader should rem em ber that V iner’s term inology does not correspond to th at used today. T he present m eaning o f the balance o f international indebtedness is th e outstanding claim s on foreigners and liabilities to them ; w hereas V iner's use corresponds to th e m odern term "th e balance o f international pay m en ts" o r to changes in the claim s and liabilities. T h e m odern reader will be struck by how th e w orld has changed. In those relatively noninflationary days, it was possible to borrow at long term at about

C A N A D A ' S B A L A X C E O F T RADE

four per cent. T he exchange rate w as truly fixed and “ m ovem ents in th e exchange norm ally show a strong aversion to reaching th e gold points". In ac co rd an ce w ith th e M ill-T aussig fo rm u latio n o f classical theory, V iner assum ed th at th e flow o f capital into C anada was the disturbing autonom ous phenom enon. T he funds borrow ed abroad w ould initially be transferred in bullion, thus perm itting an increase in C anadian m oney supply an d an increase in expenditures includ­ ing im ports an d exportable goods. Increased prices for C anadian o utpu t w ould raise the balance o f paym ents deficit so that it w ould be financed by continued new borrow ing abroad. V iner adapted th e traditional theory to tak e into account the peculiarities o f C anadian banking practice and traced the effect o f changes in bank liquidity on th e quantity o f m oney, on relative prices in C anada and ab ro ad , an d on the balance o f paym ents. He reached the conclusion th at the m echanism o f adjustm ent in C an a­ d a's balance o f paym ents operated m uch as explained by th e classi­ cal theory. T he now o f gold, m odified to correspond to the practice o f holding outside reserves by C anadian banks, was consistent with th at expected by classical theory as w ere the m ovem ents in the relative price levels o f the borrow ing country C anada, the U nited K ingdom in which th e borrow ing took place, and the U nited States from w hich m ost im ports cam e. V iner cenceded th at C anadians m ay have borrow ed ab ro ad to finance settlem ent and industrializa­ tion, but he contended that the investm ent expenditures w ould not have had a direct role in the adjustm ent o f the balance o f paym ents and th e capital flow th at was observed. H e believed that the relative inflation in C anada and the change in the term s o f trade could only be explained if th e foreign borrow ing was th e disturbing factor. L ater V iner w rote in his S tu dies in the Theory o f International Trade "th a t in th e case o f C anada before th e w ar the fluctuations in the trad e balance w ere m uch m ore the effect than the cause o f fluctuations in th e long term borrow ings ab ro ad ", thus adhering to his earlier view in C anada's B alance. F o r his part R. H. C oats, the D om inion Statistician, in his R eport o f th e B oard o f E nquiry into the C ost o f Living (1915) o f which V iner had him self m ade much use, had em phasized the role o'f dynam ic factors in the C anadian transfer m echanism w ithout, how ever, developing a specific eco­ nom ic m odel. Since 1945 a num ber o f w riters have returned to C oats' view an d claim ed th at V iner over-em phasized th e role o f m o n e tary factors as ag ain st th a t o f a u to n o m o u s ex p en d itu re changes in his explanation o f tile adjustm ent in C an ad a’s interna­ tional position. Indeed, the sequence o f events identified by Viner as being consistent w ith the classical process o f adjustm ent is also

C A R L E T O N LI B RAR Y I N T R O D U C T I O N

XV

consistent with o th er m echanism s in which the capital m ovem ent is endogenous to a process o f grow th rather than the exogenous cause o f th e disturbance. A surge in econom ic developm ent, led by Prairie expansion, occurred from 1895 to 1913. It resulted in increased exports and was accom panied by rising im ports and dom estic prices. Only after 1904 w as it accom panied by the sizeable capital im ports from the U nited K ingdom th at V iner w as analyzing. They perm itted an excess o f im ports over exports and the process o f developm ent to continue unim peded. T hus th e theoretical basis o f C anada's Bal­ ance is incom plete and undoubtedly leaves out o f account changes o f incom e and expenditure that elicited at least p art o f the flows of capital an d th at also played a larger role than V iner envisaged in the adjustm ent in the balance o f paym ents to autonom ous capital flows. T he theory o f adjustm ent in the balance o f paym ents has p ro ­ gressed during th e 50 years since C anada's B alance was published, yet this book rem ains a landm ark in em pirical econom ic research and a m ajor contribution to C anadian econom ic history. T he con­ tribution resides not only in its analysis o f the paym ents m echa­ nism , but also in the observations and th e analysis o f o th er eco­ nom ic phenom ena characteristic o f C an ad a then and in p art now. V iner explained th at the basis o f direct foreign investm ent was the technological an d m anagem ent abilities o f the foreign firm s that established them selves here, a view that has only very recently been elaborated and widely accepted. H e noted the contrasting behav­ iour o f British and U nited States' businessm en, the form er con­ cerned with portfolio investm ent, th e latter with control an d m an ­ agem ent o f enterprises in C an ad a, often using th e funds o f others. H e understood th at the C anadian tariff was a factor encouraging the establishm ent o f foreign firm s in C anada as w ere also th e suita­ bility o f A m erican m ethods to C anadian m arkets and th e need o f foreign industry for C anadian resource-based products as U nited States sources becam e depleted. T hese are questions o f interest still. H e-also w rote o f unw ise investm ents, m ostly undertaken w ith gov­ e rn m e n tal en c o u ra g e m en t, in o v e rb u ilt railw ays an d m u nicip al facilities, especially in the W est. H is pessim istic estim ate o f the prospective yield on m uch investm ent m ade in the boom turned out to be correct and this added painfully to th e financial burden borne by C anadians in th e depression years. T his book is a classic, a w ork o f lasting significance for its inter­ pretation o f the functioning o f the balance o f paym ents m echanism under th e gold stan d ard and for its description and analysis o f a rem arkable period in C an ad a’s econom ic developm ent. It bears the m arks o f its a u th o r’s genius in its sophisticated theory, its respect

X VI

C IA/ADA S BA LA AC E O F T RADE

for th e views o f earlier w riters and its painstaking concern for the facts. H. C. Eastm an D epartm ent o f Political Econom y U niversity o f T oronto

PREFACE study is intended primarily as an inductive verification of the general theory of the mechanism of international trade, and its treatment of Canadian matters is incidental to its main pur­ pose. It should nevertheless prove of some utility to students of Canadian economic affairs. The changes in Canadian financial, monetary, commercial, and industrial conditions consequent upon Canada’s participation in the war make 1913 the terminal year of a distinct period in Canadian economic history. It is mainly for this reason that I have made no attempt to carry this in­ quiry beyond the year 1913. The study of Canada’s balance of international indebtedness during the war and post-war period would encounter problems which in many respects would be essentially different from those analyzed in the present in­ quiry.; most important of all would be the effect on the mechan­ ism of international trade of Canada’s departure from the gold standard. Statements of fact in this study should be understood to be intended to apply to the period 1900 to 1913, and not necessarily to later years, even though no warning is given in the text of later changes. I am indebted for assistance in gathering the statistical details upon which the present study is based to my former teacher, Professor J. C. Hemmeon of McGill University, to the Canadian Pacific Railway, to the Dominion Securities Corporation, To­ ronto, and to many kind government officials at Ottawa. To Pro­ fessor F. W. Taussig, at whose suggestion this study was begun many years ago, and to whose kind and unflagging interest therein its final completion is due, I owe special thanks for in­ spiration, advice, and criticism. T h is

J aco b V in e r .

U n iv e r s ity

o f C h ic a g o

October 10, 1923

CHAPTER J M ETHOD AND SCOPE OF TH E PRESENT STUDY The

a p r io r i

C h a r a c te r o f th e C la s s ic a l T h e o ry o f In te rn a tio n a l T ra d e

T h e modern theory of the mechanism of international trade is almost wholly the contribution of the English classical school of economists and its later followers. Its first principles, stated rather clearly by Hume and more haltingly and inaccurately by Adam Smith, received systematic and comprehensive develop­ ment at the hands of a group of English economists writing in the first two decades of the nineteenth century, most notable of whom was Ricardo. The subsequent contributions of Cairnes and Mill to the theory of international trade, although not unimportant, were in the nature of amplification, explanation, clarification, rather than of vital addition or emendation to the logical system expounded by Ricardo. These later writers followed closely not only Ricardo’s statement of principles, but his methods of ex­ pounding and illustrating them. Those contemporary economists, such as Taussig, Edgeworth, and Bastable, who have been inter­ ested in the explanation of the mechanism of .international trade have carried the reasoning of the older writers a few steps further in some detailed aspects of the problem, and have improved the method of statement, but they also have adhered closely and faithfully, except for minor details, to the classical tradition. Alike with the remainder of the economic system of the classical school, the theory of international trade has in recent years been submitted to severe criticism from several points of view. Some­ thing will be said later 01 the sources, the methods, and the valid­ ity of these various attacks, but it is unquestionably true that the classical explanation of the mechanism of international trade has, of all the classical economics, been subjected to least criticism, both in quantity and in effectiveness, and remains to-

C A N A D A ’S B A L A N C E OF T R A D E 4 day in every important particular the authoritative doctrine ac­ cepted even by most of those economists who in other respects have largely abandoned — or believe that they have abandoned — the classical economics. The classical economists, in keeping with their general meth­ odology, developed the theory of international trade on lines almost wholly abstract and a priori. Even the arithmetical and other illustrations utilized to facilitate the exposition of reasoning necessarily difficult because of the complexity of the problem, often had little resemblance to actual conditions. In only a few instances did they make any attempt to derive or even to verify their theories by an inductive analysis of factual data.1 The classical theory of international trade is a priori in the sense that it begins with a few fundamental generalizations, largely psychological in character, assumed to be of universal validity, and that from these few principles it derives all of its important conclusions, no significant use being made of any additional data other than a few facts characteristic of our in­ dustrial and commercial structure — facts of common experience and observation, not requiring systematic observational study and analysis for their understanding and interpretation. 'With a background of rationalistic prudential psychology to start from, the classical school stressed the individual character of each transaction in international trade, in which each of the parties, being ruled by egoistic motives, demanded a value equivalent in return for everything he exported or imported. From this they derived the further principle that all exports must tally in value with all imports, and that relative price dif­ ferences are the proximate cause of all international transactions. Adjustments of the necessary balance of international transac­ tions to a commodity and service basis with a minimum of gold movements are effected, they explained, through preliminary gold movements, initiated by individuals in the pursuit of eco­ nomic gain. The influence of gold movements on price levels,

1 Ricardo made extensive and effective use of factual d ata for the purpose of inductive verification in his Reply to M r. Bosanquel’s Practical Observations on the Report of the Bullion Committee (1811). O ther instances would be hard to find.

INTRODUCTI ON

5

explained by the quantity theory of the value of money, and of price levels on the profitability of export and import of commod­ ities and services, always tended to bring about an even balance between commodity and service imports and exports. The ab­ sence of such equivalence, temporary or continued, was to be explained only as due to temporary ill-adjustments, to credit transactions, that is, loans and repayment of loans, and to non­ commercial unilateral transactions not requiring an exchange of considerations, such as tributes, subsidies, and gifts. Criticism on a priori grounds of this a priori reasoning has been directed mainly against three particulars: first, the apparent dependence of the theory on the questionable validity of the quantity theory of money; secondly, the precise part played by gold movements in the mechanism of international trade; and thirdly, the details of the reasoning regarding the order of events in the adjustment of trade balances when the currency of one or both countries engaged in trade is depreciated in terms of the standard metal. Attempts to apply the inductive method to the problem of the mechanism of international trade have been rel­ atively few, and also, with one or two exceptions, relatively un­ important. Most of them rested on the explicit acceptance of the classical doctrine, and confined themselves to the attempt to establish statistically (i) the equivalence at some definite date, or during some closely defined period, between debits and credits in the international balance of payments of a selected country, and (2) the amounts as measured in money of the constituent items in the debit and credit sides of the balance. Two recent studies have gone somewhat further. C. K. Hobson, in The Export of Capital,l has added to the quantitative establishment of the items in the balance of international transactions some analysis of the quantitative changes in the individual items which result from a disturbance in an original status quo, and of the mechanism whereby such changes are brought about. J. H. Wil­ liams, in his Argentine International Trade under Inconvertible Paper Money, 1880-1900? tested the validity of the classical doctrine in so far as it dealt with those phases of the mechanism 1 London, 1914.

* Harvard Economic Studies, 1920.

6

C A N A D A ’S B A L A N C E OF T R A D E

of international trade which were different, or might be supposed to be different, in trade under depreciated paper as compared with trade under the gold standard. Various writers on the theory of the foreign exchanges have also examined inductively, although generally only for purposes of illustration of accepted a priori principles, the part played by variations in exchange rates in the adjustment of international balances of payments. The classical explanation of the mechanism of international trade between gold-standard countries, in its larger and funda­ mental aspects, has not yet been submitted to a comprehensive and thorough inductive test. This study is primarily an attempt at such a test. It rests its case on the belief that, given a systematic and comprehensive quantitative record of economic phenomena directly or indirectly related to international transactions, and given circumstances favorable to the application of the more highly developed methods of inductive inference, a number of valuable results may be ob­ tained by the inductive method in addition to those reached by the a priori method: (x) the validity of the conclusions of the a priori theory can be tested by comparison with actual situa­ tions; (2) a more accurate and more detailed description of the mechanics of trade-balance adjustments can be obtained; (3) inspection of the factual data may suggest possible hypotheses amending or extending the accepted a priori theory, these in turn to be tested by the logical methods of deduction and of induction. T he P

l a c e o f I n d u c t io n in t h e I n t e r n a t io n a l T r a d e

T heory

of

What has just been said should not be interpreted as intended to question the value of the deductive method as a method of adding to human knowledge, or as a claim that the inductive method can replace and render superfluous the deductive method. A generalized description of a social process from observed data can completely take the place of deduction only if it is induction from “ complete enumeration,” that is, only if all the relevant facts in every situation have been completely and accurately measured, recorded, classified, and analyzed. Induction from

INTRODUCTI ON

7

partial evidence, or from incompletely classified data, itself waits upon hypotheses, upon the mental anticipation of possible causal correlations, before it can yield logically convincing inferences. The limitation of specific knowledge of facts is perhaps the chief obstacle to the use of the inductive method. This limitation of knowledge is due to the inadequacy of recorded factual data; to the difficulty of attribution of effect to cause where a combina­ tion of causes produces a joint effect; to the human element in the collection and arrangement of facts which leads to their distortion and their loss, in the process of manipulation, of their purely objective character; and, probably most of all, to the in­ accessibility to the student, under conditions usually governing his research, of the facts of mental experience necessary to a complete explanation, subjective as well as objective, motivat­ ing as well as external and physical, of a process in which man plays a part. The deductive method in economics, when its general psycho­ logical assumptions have not been too much divorced from the true psychology of the market-place, and when the generaliza­ tions concerning the environmental data which are used as pre­ mises have also been reasonably accurate, has brought valuable results. Deductive conclusions would differ, perhaps, from the results obtained by an inductive investigation of the same prob­ lem with a complete record of facts to work from; but they would differ only because they were incomplete. The differences would tend to disappear as the deductive results were supplemented by the results of inductive analysis resting on inference from the facts omitted in the fundamental abstractions of the deductive study. This assumes, of course, that the abstractions of a valid deductive theory are not inconsistent with the facts. They should be abstractions, not in the sense that they are untrue, but in the sense that they do not tell the whole truth. In the field of the theory of international trade, as in all other fields in the social sciences, there are aspects which in practice can be investigated by only one of the methods; and there are other aspects in which both methods can be more or less com­ pletely applied, and the results of the one corroborated or dis­

8

C A N A D A ' S B A L A N C E OF T R A D E

credited by the results of the other. In developing a complete theory both methods must be used; and the utilization of the one method as a means of verifying the other is made possible, not only in that portion of the field to which both can be applied but practically throughout the field, by a study of the success with which one part of the theory obtained by means of one method can be made to fit in with the other portions obtained by the other method or by both together, so as to form a com­ plete and consistent system satisfactory to the reasoning in­ telligence. As has been indicated, the special field of deduction in the in­ vestigation of the problems of international trade is the explana­ tion of the subjective phases of the problem, and particularly the motivation of individuals in their international activities. To the explanation of the objective mechanism of the process, the devices used and the manner of their operation, and the objective manifestations of human behavior as it reacts to the environment under the stimulus of the main incentives operating, the induc­ tive method can make important contributions, partly because these phases are objective, and partly because they rest on a com­ plicated and detailed industrial and commercial organization, of which even the most satisfactory abstract theory could take into consideration only the main framework. The two methods can be used as tests on each other chiefly in that common portion of the field where what the deductive theory would lead us to ex­ pect to find men doing can be compared with what the inductive theory actually finds them doing, and can be made to suggest a rational explanation of these doings. In the theory of international trade there must be left to the deductive theory, as its exclusive field, the exposition of why men act as they do in their international transactions, and of the subjective results of such action. The remainder of the theory is available to the inductive method, provided the facts have been collected and recorded. Induction can be utilized generally in cooperation with deduction, to describe and explain the changes in the volume and character of trade, the movements of price levels, the part played by exchange rates and gold movements in

I NT R O D U C T I O N

9

the adjustment of trade balances, and the reaction upon inter­ nal economic conditions of changes in international trade. The quantitative determination of the division of gains from interna­ tional trade appears to be a problem beyond solution by either method. But quantities which are incapable of direct measure­ ment are sometimes subject to measurement of their relative changes. The inductive method can be utilized here, both to test deductive conclusions as to the direction of the change in the divi­ sion of the gains following upon a specific change in the conditions of international trade, and, given the direction of the change, to supplement this by an objective measurement of the degree of change in the ratio in which the gains are divided. The present study will pay most attention to those phases on which an in­ ductive investigation can throw most light, although a consider­ able amount of deductive reasoning will inevitably make its ap­ pearance, mingled with the principles obtained inductively from a systematic factual study of a specific situation. T h e Scope

of the

P r e se n t Study

No logically precise division can be made between the problems which are problems of international trade, and those which are not. In a country whose commercial relations with other coun­ tries are important, no significant element of its internal economic structure is free from important influence by factors wholly ex­ ternal in their origin, and the degree of importance of this influ­ ence is directly dependent upon the extent to which international trade has been developed by that country. In countries highly developed economically there is a remarkable degree of inter­ dependence between the various economic factors at work. Fur­ thermore, the character, direction, and extent of a country’s foreign trade are always closely related to its material and human resources, its physical situation, its political and legal institu­ tions, its sentimental affiliations, its internal industrial, financial, and commercial structure. It would be absurd to attempt an analytical study of a country’s foreign trade without correlating it with its domestic industry, or, on the other hand, to make a

IO

C A N A D A ' S B A L A N C E OF T R A D E

general survey of its internal industry without paying consider­ able attention to the influence upon it of its foreign trade. In the present stage of development of statistical data, some phases of great importance must often be ignored ip an inductive study, while other phases of less significance receive detailed analysis, because of differences in the relative completeness of the recorded data bearing on different problems. Partly because of the survival of mercantilist beliefs concerning external trade and partly because of fiscal necessity, many phases of commerce are subjected to official accounting only at political boundaries, and are thus available for inductive inference only in their in­ ternational aspects. It is obvious, therefore, that the particular situation studied and the data there available must play a con­ siderable part in the determination of the scope of a study such as this. The particular situation examined may further affect the character and scope of the study inasmuch as special factors may be prominent in that situation, or may have been subject to particularly marked variations, and may thus more readily lend themselves to inductive investigation. It is on these grounds rather than on the basis of any claims to logical consistency that the writer defends his acts of omission and commission in his choice of phases for investigation. As a result of the emphasis laid on the inductive method, this study should offer as its special contribution a more detailed, more concrete description of the mechanism and the objective results of external trade than is to be found in the primarily deductive treatments of this subject. But even in the problems of the dis­ tribution of gains and of the ratios of international exchange, de­ tailed study of a general situation and analysis of the mechanism may suggest new solutions for old problems and may reveal new problems affording valid justification for occasional excursions into deductive analysis. Above all, the description and analysis of the objective data, in addition to providing material for in­ dependent inductive inferences, should make possible a critical examination of the accredited deductive theory, with a view to verification where such is justified, and to correction where the evidence demands it.

II

I NT R O D U C T I O N C

an ad a

,

from

19 0 0 P

to

1913,

resen t

Stu

th e

F

ie l d

of

th e

dy

The particular field in which the data for a thoroughgoing in­ ductive analysis of the mechanism and effects of external trade have been sought is Canada during the fourteen-year period from 1 9 0 0 to 1 9 1 3 , inclusive. There are a number of weighty con­ siderations pointing to Canadian trade history during this period as a particularly fruitful field for research. To begin with, an inductive investigation of social phenomena, in order that it may bring results of any definiteness and reliability, must confine itself to factors which in the situation studied are of sufficient im­ portance to influence appreciably the phenomena causally related to it. If minor factors in a complex situation are investigated with the intention of measuring the extent of their influence, it is often found that their effects are so mingled with the ef­ fects of other causes as to be lost in the complexity of the situa­ tion. Under such circumstances no inductive attempt to learn their effects, no matter how detailed and painstaking, will suc­ ceed in obtaining results not open to question. How ascertain that a small variation in an effect of a combination of causes is due to the particular cause studied, and not to some undetected variation in some other causal factor, or to some error or in­ accuracy in the recorded data? And so, if the effects on each other and on the commercial and industrial structure of a country, of the factors at work within the mechanism of its external trade, are to be analyzed and measured with any reasonable degree of accuracy of results, the external trade of that country must be of great importance relative to its internal trade and to its industry and commerce in general. Otherwise their effects will be indistinguishably merged in the effects of the internal factors at work. To Canada its foreign trade is of supreme importance. With its inhabited territory situated wholly within the-cool temperate zone, Canada can produce within her own boundaries, even with the highest degree of artificial stimulation, only a small percent­ age of the range of commodities demanded by her people. Limited

12

C A N A D A ’S B A L A N C E OF T RAD E

by the character of her climate, soil, and natural resources, and by the sparseness of population, to comparatively few export­ ing industries, she must with the products of these industries pay for the commodities of other countries which she cannot, or cannot profitably, produce for herself, but which she insists on having. The Canadian manufacturing industries are much more dependent on imports for their raw and semi-manufactured materials than the American, and even than the British. Cotton, hemp, silk, wool, jute, rubber, hides, coal, tin, copper, iron ore, raw tobacco, raw sugar, all have to be obtained from abroad. Tropical fruits, corn, vegetable oils, tea, coffee, cocoa, spices, must be imported from warmer countries. Even where the natu­ ral and technological conditions are not unfavorable for the de­ velopment of domestic production of commodities of a sort de­ manded by Canada, there are often social forces at work which prevent their domestic manufacture, at least in all its stages, from developing, and which force Canada to obtain these commodities by importation in return for the inchoate products of her great primary industries. Chief of these forces is the influence exerted upon the Canadian consumer by the standards of consumption of Great Britain and the United States. Canada has only imperfectly developed a national consciousness, and not to any appreciable extent na­ tional standards of taste and consumption. With the exception of daily newspapers, her periodicals of general circulation are mainly American or English. Thus not only do New York and London, through prestige and sentimental, racial, and lingual kin­ ship, mould and direct the demands of the Canadian consumer, but through their periodicals, which circulate in huge numbers, with their advertising contents often more bulky than their literary features, they train him to demand the special brands and styles of the United States and England. As a result, the native production of similar articles is checked. The great dis­ tances between the centres of population within Canada, com­ bined with, on the one hand, the proximity of American producing regions to Canadian markets and of Canadian producing regions to American markets, and on the other hand, the cheapness

13

INTRODUCTI ON

of water-transportation to and from Europe, further promote foreign trade. Table I presents a comparison of the per capita foreign trade, ' in 1911, of the great trading nations populated by Europeans. Of the countries, listed, four had a per capita trade in 1911 greater than that of Canada. All these four countries use the value on arrival (c. i. f.) for their import statistics, whereas Canada uses the lower value in port of lading (f. o. b.). For New Zealand and Australia, distant as they are from the important markets, this has a substantial influence on the statistics of trade. Transit, entrepot, and reexport trade make a large fraction of the total trade of Belgium and the United Kingdom, but are unimportant in Canada. It is probable that, if proper allowance were made for these factors, the basic per capita foreign trade of Canada would be exceeded only by that of Australia and New Zealand, and only by narrow margins even in these instances. T A B LE I Per C

a pit a

T

rade

of

V

a r io u s

C

o u n t r ie s

in

A g s re s a te tra d e Po p u latio n

C o u n try

thousands o f dollars

C an ada..................................................... $874,638 Belgium .................................................... 1,494,578 New Zealand.......................................... 187,850 A ustralia.................................................. 713,207 G reat B ritain.......................................... 6,024,365 A rgentina................................................. 670,107 France..............................................3,471,745 G erm any.................................................. 4,439,331 C hile.......................................................... 224,511 United S tates........................................- 3,267,031 Ita >y........................................................... 1,039,063 Braz>l......................................................... 583>343 R ussia........................................................ 1,299,429

1 Com puted from d ata for i q i i o r nearest ye a r in

thousands

7,207 7,424 1,008 4,455 45,369 7,172 39,602 64,926 3,415 91,972 34,671 23,071 167,003

19 1

i

1

P e r c a p ita trade

dollars

$121.36 201.32 186.36 160.09 132-78 93-43 87.67 68.38 65.74 35-52 29.97 25.28 7.78

Statesman's Year Book, 1 9 1 3 .

The data presented in the table suggest the generalization that per capita foreign trade varies inversely with the number of in­ habitants. For the smaller European countries the explanation probably lies in the importance of their transit trade, in their limited range of natural resources, in their peculiar adaptation to

14

C A N A D A ' S B A L A N C E OF T R A D E

certain industries, and in their proximity to foreign producing and consuming markets. For Canada, in addition to these reasons there should be noted the fact that since Canadian manufactur­ ing technique is closely modelled on the American, with its large-scale mass production of standardized commodities, the limited extent of the domestic market, in so far as population is concerned, and the limited supply of labor, restrict the range of industries to which, under Canadian conditions, this technique can be intensively applied. If comparison between the relative im­ portance of production for domestic and for foreign consumption were feasible, the importance to Canada of its foreign trade would probably appear to be even greater than is indicated by this table. Another factor of great importance in making Canadian trade experience a favorable field of investigation is the high degree of compactness and unity of the Canadian industrial and commercial structure. At first glance one should not expect much economic interdependence between the various parts of the Dominion. The population is practically all to be found within a narrow strip of land extending across the continent, and even this narrow strip of land is broken up into a number of distinct sections by the projection of Maine into Canadian territory, by the barren lands north of Lake Superior, and by the Rockies. But what­ ever may be the situation geographically, the social factors have all contributed to the development of what is, under the circum­ stances, a remarkably unified economic organization. The effect of a high protective tariff in forcing traffic into east and west channels, and the deliberate policy of the Canadian federal and provincial governments of stimulating transportation service of this character by money and land subsidies of the most generous character, have been most effective in building up a transporta­ tion system both by land and by water, which serves to tie to­ gether province and province rather than province and American state.1 Furthermore, centralization of economic control, with the 1 While lending to unify the economic organization of Canada, these factors tend, of course, to restrict somewhat the volume of foreign trade and thus operate counter to the natural tendencies enum erated above.

15

I NT R O D U C T I O N

whole Dominion as the economic unit, has also been carried to great lengths. Practically all long-distance transportation was, during the period under study, in the hands of the government and three or four giant corporations; and in a country of speciali­ zation in industry, sparse population, and great distances, trans­ portation is bound to be one of the most important industries, if not the most important. The reserve system for Canadian cur­ rency, government and bank, is highly centralized, while banking is in the hands of less than twenty-five banks. In manufactur­ ing, and even in primary industries such as mining, the fisheries, and lumbering, similar centralization of control obtains. It has often been said, and with greater truth as applied to Canada than to any other important country, that every consumer’s product and many of the raw materials are monopoly or quasi-monopoly products.1 The imports of the west either originate in the east or are bought through eastern merchants and transported through the east, while the products of the west are largely sold to the east, whether for eastern consumption or for eventual export, and are shipped to the eastern provinces in either case. Add to these the important financial interrelations between the indus­ trial and the banking, financial, and transportation magnates, and the further centralization which is procured through the powerful influence wielded by the Canadian Manufacturers’ and the Canadian Bankers’ Associations, and it becomes clear why all these factors must operate to establish an unusual degree of economic interdependence between the various parts of the Dominion, with the result that there is little likelihood that an important financial or industrial phenomenon arising in one part of the country will be neutralized by counteracting phenomena in another part and will thus not have a visible effect in the na­ tional statistics. Canada, because of these circumstances, pre­ sents opportunities for statistical analysis and research not avail­ able in countries which are economically more loosely organized and in which there is less likelihood of all important factors operating on a national scale. 1 Cf. Jam es J. H arpell, bines.”

Canadian National Economy,

Ch.

i i i

:

“ C anada’s Com­

i6

C A N A D A ' S B A L A N C E OF T R A D E

The smallness of Canada’s population of itself has been sug­ gested as a factor in making Canada a fertile field for economic research:

We are often reminded that Canada’s population is small and her trade a modest affair. But the smallness of the scale has its advantages, not only when we watch the workings of a political experiment in federal govern­ ment, but when we watch the movements of trade. The daylight of first principles may shine more easily through the figures of a comparatively small commercial nation than through those of countries which have seven or eight times the population, and have been doing business for centuries. Along with the larger numbers and the older business come the complexity and perplexity due to the increasing plurality of causes; and the interpre­ tation of figures becomes less simple even though the guiding clues arc the same for all cases, great or small. It is well for those that have “ a passion for statistics” to seize their opportunity; it will not last long.1

Perhaps the most weighty justification for seeking in Canadian experience a field for the inductive investigation of the theory of international trade is to be found in the fact that during the years 1900 to 1913, chosen for special study, there occurred in Canada a great importation of foreign capital, rising from a few million dollars in 1900 to almost half a billion dollars in 1913, and amounting for the entire period to over two billion dollars. This tremendous import of capital created a situation peculiarly favor­ able for the application of the inductive method, especially in its special form of the method of concomitant variations. The in­ ward movement of capital dominated all other factors in Canada’s foreign trade during the period of heavy borrowings, and the variations in the inward llow of foreign capital were marked enough to effect sharp correlated variations in other elements in the situation. As a consequence, an inductive study of Canada’s international trade during this period becomes largely a study of the adjustment of Canada’s trade balance, currency and banking system, price levels, and industry in general, to a heavy import of foreign capital. Finally, an important prerequisite to the use of the inductive method, the availability of adequate and comprehensive statis­ tics, is for the particular subject of investigation more nearly ful1 Jam es Bonar, “ C anada’s Balance of T rad e,” 1913, p. 82.

Political Science Association,

Proceedings of the Canadian

I NT R O D U C T I O N

17

filled in Canada than in most countries. Many statistical series, which in other countries are not obtainable or are available only for districts or states, are available for Canada as a whole. Com­ plete currency and banking statistics are published monthly under official auspices. The problem of measuring gold move­ ments is simplified by the fact that no gold coin circulates in Canada and all gold coin in the country is centralized in gov­ ernment or bank reserves. Detailed and excellently classified commerce and price statistics are regularly compiled. Original statistical investigations under government and under private auspices have made available for our present purposes important data which ordinarily are not similarly obtainable for other countries.1 The study is divided into two parts. In the first part statistical estimates are made of the important items entering into the Canadian balance of international indebtedness. The second part comprises a detailed analysis of the mechanism of adjust­ ment of the balance of indebtedness. 1 Special acknowledgment m ust be m ade to The Cost of Living Report, vol. ii, I9I Si prepared under the direction of R . II. Coats, Dominion Statistician. This is a m ine of statistical and other information, much of it bearing directly upon in­ ternational trade problems. T he indebtedness of this study to the Cost of Living Report is abundantly evidenced by the frequent citations and references thereto.

PART I

T H E CANADIAN BALANCE OF IN TERN A TIO N A L IN D EBTED N ESS

INTRODUCTORY terminology used in the theory of international trade is rather formidable, is sometimes confusing, and is often involved in ambiguities. It will be well, therefore, before proceeding to the body of the investigation, to forestall misunderstanding by carefully defining the more important terms used. A transaction which creates a pecuniary obligation on the part of a person in Canada toward someone outside Canada is called a debit transaction; and one which creates an obligation toward a Canadian by a person outside Canada is called a credit trans­ action. For example, a commodity import is a debit transaction; a commodity export is a credit transaction. By the Canadian balance of international indebtedness is meant the difference between the totals of Canadian debit and credit international transactions. If the debits exceed the credits, there is a debit balance; if the credits exceed the debits, there is a credit balance. In accordance with customary usage the term balance is used also, sometimes to signify an even balance or equilibrium be­ tween debits and credits, at other times to designate the balancesheet itself, that is, the tabulation of all the debit and credit items, without special reference to the quantitative relations of total debits to total credits. In such cases the context will show what meaning must be given to the term balance. The balance of payments, or, if it be assumed that all immediate obligations are immediately liquidated, the “ balance of immediate obliga­ tions,” refers to the difference between immediate debit and credit obligations, and not to the difference between all debit and credit transactions. If some of the transactions are on a deferredpayment basis, as is generally the case, there may be a debit balance of indebtedness at the same time that there is a credit balance of payments, and vice versa. The commodity balance of trade, the balance of service transactions, and the balance of non-commercial transactions indicate, respectively, the differences T

he

21

22

C A N A D A 'S B A L A N C E OF T R A D E

between the amounts of commodity imports and exports, of debit and credit international service transactions, and of debit and credit international non-commercial transactions, irrespective in each case of whether or not the obligations created thereby are immediate or deferred. The total of these three balances equals the total balance of international indebtedness.1 This total bal­ ance of international indebtedness for any period is, of course, the same thing as the difference between total foreign loans and total foreign borrowings for that period. In Part I the commodity balance of trade, the balance of non­ commercial transactions, and the balance of service transactions are first estimated for each year in the period, and the total balance of international indebtedness is then computed from these partial balances. The addition, to the debit balance of international indebtedness so obtained, of the volume of invest­ ments of Canadian capital abroad gives as a result an indirect estimate of the foreign investments of capital in Canada. The accuracy of this estimate of foreign investments in Canada, and, indirectly, of the entire calculation of the balance of international indebtedness, is then tested by a direct estimate of the volume of foreign capital invested in Canada, based upon the available information relating to such investments. The only other comprehensive attempt to estimate the Cana­ dian balance of international indebtedness is that made by R. H. Coats, Dominion Statisticiah, in connection with his cost-ofliving inquiry, published in 1915.2 Coats’ analysis of the balance 1 T he H arvard Review of Economic Statistics, in its calculations of American trade balances, appears to use the term “ balance of paym ents” interchangeably w ith the term “ balance of indebtedness,” and so tabulates and describes its m aterial as to m ake it impossible to determ ine w ith certainty w hether in particular instances balance of paym ents or balance of indebtedness, as the term s are here defined, is m eant. Usage is not uniform , b ut the weight of authority and considerations of economy and clarity in terminology are in m y opinion both opposed to the attribu­ tion of identity of meaning to the two terms. In any case, there is an im portant difference in m eaning between w hat is here called the balance of paym ents, i.e., the balance of imm ediate (and honored) obligations, and w hat is here called the balance of indebtedness, i.e., the balance of all obligations, imm ediate and deferred. 3 Report of the Board of Inquiry into the Cost of Living. Sum m ary and vol. ii, O ttaw a, 1915.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

23

of indebtedness covers approximately the same period as that investigated in this study and, in general, follows the same lines. While it proved of great aid to the writer, its results, for reasons later to be explained, are not in close agreement with those ob­ tained in the present study.

CHAPTER II T H E COMMODITY BALANCE OF TRADE

By the commodity balance of trade is meant, of course, the dif­ ference between the value of the exports and that of the imports of physical goods. The trade in coin and bullion is sometimes excluded and sometimes included in the striking of the commodity balance. Where the purpose is to ascertain the balance of im­ mediate obligations which is not liquidated by shipment of com­ modities (or services) and must therefore be settled in money, it is proper to exclude coin at least, and perhaps also bullion.1 For our present purpose, the ascertaining of the debit balance of in­ ternational indebtedness, or the amount of obligations of Canada to other countries which were not met during the period, whether by shipment of goods or money or in any other way, the trade in coin and bullion must be included alike with the trade in other commodities. Information as to the amounts of commodity exports and im­ ports is to be obtained from the official commerce statistics of practically all civilized countries, and it would appear at first glance to be a simple matter to strike of! the balance by setting exports against imports. Commerce statistics, however, like all other statistical data, have their peculiarities. It is generally advisable to examine carefully the basis of their compilation, , what is included and what excluded, and the time-units for which the data are collected, before proceeding to use such data as the foundation for important conclusions. 1 I t is true, of course, th at a balance of imm ediate obligations cannot be struck without allowance for im ports and exports of capital, i.e., deferred obligations, and for obligations contracted through other than com m odity transactions. Where the commodity balances of trade are alone being considered, there is no obvious justification for excluding coin im ports and exports. In C anada, bullion moves in foreign trade purely as a commodity, as it does not enter into the currency in its unm inted state, and little of it is m inted in Canada. 14

BA L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

2$

T h e C a n a d ia n C o m m e r c e S t a t is t i c s

Method of Compilation. — The Canadian statistics for exports and imports are primarily collccted and tabulated by the Depart­ ment of Customs, by months and by years, on the basis of dec­ larations of value by importers and exporters, checked, espe­ cially for imports, by the valuations of the customs inspectors. The tabulated statistics, during the period under study, were published by the Department of Customs, but the Department of Trade and Commerce reworked the statistics of the Customs Department into other forms, elaborated the classification thereof, added to the amount of comparative statistics, and published monthly and annual reports based on the data originally col­ lected and issued by the Customs Department. Most of the commerce data used in this report are obtainable in both sets of reports. Statistics of imports are published both for “ total im­ ports” and for “ imports entered for consumption.” “Total imports” are all imports which reach the customs warehouses. “ Imports entered for consumption” are all imports which pass through the customs warehouses and enter into the Canadian channels of trade. “ Imports entered for consumption” is a technical term, used in both Canada and the United States for imports to which it does not always accurately apply, since it includes goods not consumed in Canada, if they are reexported after passing through the customhouse. Statistics of exports are published for “ total exports,” for “ exports of Canadian produce,” and for “ exports of foreign produce.” These terms are self-explanatory. Included in ex­ ports of “ foreign produce” are foreign goods exported from cus­ toms warehouses without having passed into the channels of Canadian trade, and foreign goods exported after having been “ entered for consumption in Canada.” The amount of exports of foreign produce is generally greater, therefore, than the differ­ ence between “ total imports” and “ imports entered for consump­ tion.” 1 To obtain the commodity balance of trade, the statis­ tics of “ total imports” and “ total exports” must be used. 1 Since 1916 a comprehensive reorganization of C anadian commerce statistics has been effected, and w hat is said here should be understood to be applicable to

26

C A N A D A 'S B A L A N C E O F T R A D E

Methods of computing Values. — There are important diver­ gencies in the methods used by various countries in computing the values of their imports and exports.1 Most countries use c. i. f. values for imports, or the values on arrival at the port of import, including freight, insurance, and other transport charges. Many countries use official valuations, which in some cases are arbitrary-or obsolete and have little relation to actual values. Canada follows the American usage of basing its import statistics on the values of imports in the countries whence the goods were consigned to Canada. The values used for imports are the “ fair market values of such goods when sold for home consumption in the principal markets of the countries whence, and at the time when, the same were exported directly to Canada.” The term “ direct” does not exclude shipments passing in continuous voy­ age through the ports or other territory of a third country. Un­ less either “dumping values” or undervaluation are discovered in the values declared and sworn to in the invoices, the invoice values are taken. Except for the relatively insignificant amount of goods which are undervalued to evade customs taxation with­ out discovery by the customs officials, or which are discovered by the customs inspector to have been sold at dumping prices, the recorded statistics of imports represent, therefore, the actual, f. o. b. charges made for the goods by the foreign exporters.2 The importer pays not only the f. o. b. invoice price, but also the freight and insurance and other charges incurred in transport­ ing the goods to the point of destination. Nevertheless, import statistics based on f. o. b. values have the advantage that they the period under study, but not necessarily to subsequent years. Statistics of “ total im ports" are, since the fiscal year 1920, no longer published, and statistics of goods exported from warehouses are collected and published separately as “ transit trade.” T he Customs D epartm ent has informed the w riter th at the dif­ ference between “ total im ports” and “ im ports entered for consum ption” wa3 due alm ost wholly to im ports of w heat in bond from the United States, for reexport overseas, when it appeared in the statistics of exports of foreign produce. Such w heat would now appear only in the statistics of transit trade. 1 Cf. United States D epartm ent of Commerce, M isc. Series, No. 59, “ M ethods of C om puting Values in Foreign T rade Statistics.” 1 F or a qualification of some im portance with regard to trade discounts, see infra, p. 71.

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

27

are accurate as far as they go. Those countries which base their import statistics on values at the port of entry usually obtain these values either by adding an arbitrary percentage, kept uni­ form throughout long periods, to the invoice values, or by valuing the goods more,or less arbitrarily and independently of the in­ voice value, on the basis of their supposed values at the port of entry. Even with the inadequate data available as to freights, a careful estimate of the amount of the import freights added to the invoice values should give more acceptable results than the arbitrary usage of customs officials.1 The values used in compiling the export statistics are: for goods “ the produce of Canada,” their value at the time of ex­ portation at the “ port” 2 whence shipped; for exports of foreign produce, the “ actual value” of such goods, which means in practice the value declared by the exporter, and probably in­ cludes as a rule the accretion in value to the goods between arrival in Canada and reshipment from Canada abroad. Accuracy of the Statistics. — For the items which they cover, with the exception of gold coin, the Canadian‘statistics of ex­ ports and imports are probably as close to accuracy as is reason­ ably to be expected of any comprehensive statistics. An ex­ ceptionally efficient Customs Department collects with great care the data for both the import and export statistics, and no allow­ ance need be made, with the exception noted, for inaccuracy in the published statistics. Until June 30, 1900, the statistics of exports were regarded by the Customs Department as inaccurate for shipments overland to the United States, and an addition of five per cent was made annually to the collected statistics of ex­ ports to the United States, to cover unrecorded exports. In 1900, however, the Customs installed a new system of collection of export statistics for overland shipments, and abandoned as un1 In the Final Report of the Dominions Royal Commission this question is enlighteningly discussed, with special reference to C anada, and the conclusion reached th at the c.i.f. m ethod of com puting im port values would result in great inaccuracy if used in C anada, because of the great range in the ad valorem proportions of the freight charges of im ports overland from the U. S. (G t. Br. Pari. Papers, Cd. 7971 [1917I, p . 166). s Includes inland towns, and indicates merely the point of shipm ent.

28

C A N A D A 'S B A L A N C E OF T R A D E

neccssary the allowance for unrecorded items. The defects in the statistics of imports and exports of gold coin are discussed later. Omissions and Inclusions. — A careful study of the commerce statistics of any country generally reveals some unusual omis­ sion or inclusion in the items of commodity trade for which data are collected, the result of conditions peculiar to the trade of such country or due to some tradition or practice of long standing in the department which gathers or publishes the statistics.1 The most important aspect of the Canadian statistics requiring attention in this connection is the inclusion, in the recorded statistics, of imports and exports of settlers’ effects. As these move in or out of the country with the owner, they create no international obligations, and, in this sense of the term at least, are non-commercial in character. While the movement of set­ tlers’ effects in or but of the country is a movement of capital, it differs from the ordinary import or export of capital in that it involves no payment of interest or repayment of principal to or from Canada as the case may be. The statistics of imports and exports of settlers’ effects are therefore to be deducted from the statistics of total imports and exports in the present study, whose purpose it is to ascertain the balance of Canadian indebtedness to other countries. Ships purchased by Canadian companies for use in the foreign trade and ships of British registry and construction imported for use in the coastwise or internal trade are not subject to duty in Canada, and no statistics of imports of such ships are collected. All, or practically all, the Canadian-owned ships engaged in the foreign trade and not constructed in Canada are of British origin. It may be assumed, therefore, that all the imports of ships for which no data are collected are of British ships. The annual statements of the trade of Great Britain record exports by desti­ nation of new ships, but exports of old ships are not recorded. These are not unimportant. In one year, 1903, the Canadian Pacific Railway purchased for approximately $7,000,000 a fleet of 1 In the British statistics, for instance, there are not included im ports and ex­ ports of precious stones, exports of old ships, and exports of bunker coal.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

2996

1,152

190

8 11

73,798

191

0

1 2 4 ,6 0 2

1 ,0 6 1

13 2 ,2 0 3

191

1

1 3 1 ,1 1 4

1 ,5 3 9

2 0 1,7 8 4

191

2

J

44

2 0 2 ,36 6

40 , I 43

1

Canada Year Books,

M

6 5 ,8 0 7

1 9 1 1 , p. 3 9 8 , and 1 9 1 2 , p. 4 4 .

T h e figures giv en above were issued b y the Superintendent of Im m igration, and are presum ably to be regarded as estim ates based upon actu al d a ta collected b y C an adian im m igration officials from im m igrants. T h e y include, it w ill be noted, both effects and cash. T o the exten t th a t the effects were recorded as

42

C A N A D A 'S B A L A N C E OF T R A D E

imports, they have already been dealt with. But the import statistics of “ settlers’ effects” are collected by the Department of Customs, and not by the Immigration Department. Settlers’ effects are free of duty; they are mainly old articles, not accom­ panied by invoices to aid the customs officials in their valuation; and their accurate valuation, owing to their non-commercial character, is of slight importance. The recorded statistics of im­ ports of settlers’ effects are, therefore, probably underestimates.1 The value of settlers’ effects which escapes official record does not concern us here, since it does not affect the recorded balance of trade. But because of the possible discrepancy between the valuations of settlers’ effects by the Department of Customs and the Immigration officials, it is not permissible to take the Immi­ gration Branch’s figures given above, less the amount of settlers’ effects recorded by the Department of Customs, as measuring the amount of cash brought in by immigrants from the United States. But even if very generous allowance be made for the value of effects, the Immigration Branch’s figures for cash brought in are unquestionably great overestimates. As Dr. Bonar points out, the total imports from the United States do not greatly exceed the estimates of the Immigration Branch for cash and effects brought in by immigrants from the United States.2 The litera1 Cf. Jam es Bonar, “ C anada’s Balance of T rade,” Proceedings oj Canadian Politi­ 1913, p. 88: “ T his [the value of im ports of settlers’ effects from the United S tates as recorded in th e official im port statistics] is a modest figure. . . . Through the courtesy of th e Superintendent of Im m igration I lcam th a t it is furnished by the D epartm ent of Customs, and, as a great part of settlers’ effects is not subject to d uty , the full value would not be shown.” T here is an u n ­ w arranted implication here th at statistics of im ports of non-dutiablc goods are necessarily unreliable. 5 Ibid., p. 89, in reference to th e statistics for 1911: “ W ith every allowance for th e difference between a calendar and a fiscal year, the figure seems very high. The value of all the im ports from the United States in the ordinary way of trade would be about 277 millions; and we are asked to believe th a t the said 130,000 settlers brought w ealth to nearly three-quarters of th a t am ount, about 202 o ut of about 285 minus (the recorded im ports of settlers’ effects] about 8 millions. . . . In absence of the d ata on which this estim ate is founded, we can place much less con­ fidence in it than in the recorded value of the effects; and the authorilies have done well to exclude it from the records of im ports.” Cf. also Professor Stephen Leacock, cal Science Association,

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

43

ture issued by the Immigration Branch gives evidence of the influence of a “ boom” psychology, and little confidence can be placed in statistical data presented by it which are not collected according to routine methods prescribed by statute. F. W. Field estimates on the basis of the kind of evidence sub­ mitted by immigration officials that the value of effects brought in by settler immigrants from the United States is $350 per capita, and of cash is $500.* Coats accepts Field’s estimate and applies it to all immigrants from the United States.2 There is ground for belief that even this estimate is not conservative enough. Not all the immigrants from the United States to Canada are prosperous farmers. Farm laborers and their families and the families of farmers are all included in the Canadian official statistics of im­ migrants, according to occupation, under the heading “ farmers and farm laborers,” and less than one half of the total immigra­ tion from the United States is in this class. Many of the Ameri­ can immigrants who take out homesteads or buy farms in Canada are sons of American farmers, whose capital is borrowed from “ T he Canadian Balance of T rade,” Journal of Canadian Bankers’ Association, vol. xxii (April, 1915), p. 173: “ T he average figure of $1000 per person seems ex­ trem ely high.” 1 Capital Investments in Canada (1913 ed.), p. 181. 2 Cost of Living Report, vol. ii, p. 902. T he Canadian M inister of Finance, the H onorable W . I. W hite, in his B udget Speech of M ay 12, 1913, made the following reference to capital brought in by im m igrants from th e U nited S tates: “ From com pilations carefully made by the D epartm ent of th e Interior [the Im m igration B ranch is a division of this D epartm ent] it has been conservatively estim ated th at the class of imm igration we receive from the United States, th a t is to say of farmers who have sold out their holdings in the States, and have taken up land in western C anada, brings w ith it capital (including settlers’ eflects) to the am ount of over S i,000 per head or say $5,000 per fam ily of five persons. T he to tal num ber of such im m igrants for the calendar year 1912 was 140,143- Applying the rate above m entioned per head the am ount of capital and effects accompanying this immigra­ tion would reach a total exceeding $140,000,000, in value. W hen considering the excess of im ports from the United States over our exports to th e United States this large influx of capital to be productively employed in our agriculture m ust, as I have pointed out previously, not be overlooked.” I t should be noted th at the De­ partm ent of the Interior thus stands sponsor for two m arkedly different estim ates of the per capita w ealth brought in by im m igrants from the United States, namely, $1441, as given in T able IV, and $1000, as reported here by M r. W hite. M r. W hite, like M r. C oats, assum es also th at all of the imm igrants from the U nited Stales are well-to-do farmers.

C A N A D A 'S B A L A N C E OF T R A D E 44 their fathers in the United States, and is repaid after a few success­ ful crops. The remaining immigrants from the United States consist almost wholly of general laborers, mechanics, miners, and domestic servants, persons with but small capital who come to Canada in search of employment. Estimates of S500 per capita for farmers and farm laborers and S100 per capita for other immigrants from the United States are probably generous enough, and will be used here. Capital per Capita of Immigrants from Other Countries. — The Canadian immigration statistics for arrivals by ocean ports cover only those who travel steerage, and immigrants who travel on first-class tickets are not included. The Immigration Branch pub­ lishes statistics for saloon passengers arriving at ocean ports, which give data of total saloon passengers, returned Canadians, and tourists. Statistics of saloon immigrants can be obtained by subtracting the figures for the two last-named classes from the total figures. Coats1 estimates that Continental European im­ migrants bring on the average S25 each, and, following F. W. Field, that British immigrants bring on the average $100 each. He bases the higher estimate for British immigrants on the ground that many of the British immigrants are agricultural, and bring sufficient capital to settle in the west. Paish2 estimated at $50 the average sum brought into the United States by immigrants. As in the United States a much greater percentage of the immi­ gration comes from eastern and south-eastern Europe, a class of immigrants who bring little money, his estimate may be re­ garded as in reasonable agreement with the ones here made for Canada. The estimate of $25 per capita for steerage immigrants from Continental Europe wilLbe used here. For saloon immi­ grants, who come almost wholly from Great Britain, $500 per capita is estimated, and for steerage immigrants from Great Britain, $50. Canada levies a head tax on Chinese immigrants, other than merchants and students, upon their entrance into Canada. The

1 Cost o j Living Report, vol. ii, p. 902. 2 Sir George Paish, The Trade Balancc M onetary Commission), 1910, p. 182.

0/ the United States

(U . S. N ational

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

45

receipts from this tax during the period under study amounted to $13,000,000^ and Coats includes this sum in his estimate of the capital brought in by immigrants.2 After 1904 the tax amounted to $500 per capita. As Chinese immigrants of the class subject to the tax are not financially in a position to meet so severe a demand, there can be no doubt that the tax is paid for immigrants wholly or almost wholly by Chinese already in Canada. The proceeds from this tax are therefore not included in the present calculation of the amount brought in by immigrants. Capital brought into Canada by Immigrants. — Table V, on pages 46 and 47, presents the estimated amounts of capital brought into Canada by immigrants. C a p it a l

taken out of

C anada

by

E m ig r a n t s

No statistics of emigration are published by Canada. As some knowledge of the amount of emigration is necessary for an esti­ mate of the amount of capital taken out by emigrants, resort must be had to rough estimates based on the statistics of immi­ gration from Canada published by other countries, on census statistics, and on other relevant data. Emigration from Canada to the United States, oj Natives oj the United States. — From June 1, 1901, to June 1, 1911, there was,

according to the Canadian census returns, an increase amount­ ing to 175,781 in the number of persons in Canada who were bom in the United States.3 The Canadian immigration statistics are collected on the basis of the countries from which immigrants come, and not on the basis of nativity. For the period from June 30, 1909, to June 30, 1914, there are available, however, statistics for the number of immigrants into Canada from the United States who were citizens of the United States. Included among citizens of the United States would be naturalized aliens, including per­ sons of Canadian birth, but the last-named are not included as immigrants in the Canadian returns. The census reports of the United States give the foreign-born population of the United 1 Canada

Year Book, 1913, p. 111. • Cost of Living Report, vol. ii, p. 903. 3 Canada Year Book, 1913, p. 73: 127,899

>n I90i, 3°3,8o in 1911.

46

C A N A D A 'S B A L A N C E OF T R A D E

States as 13.6 per cent of the total population in 1900, and 14.7 per cent of the total population in 1910.1 Allowance being made for returned Canadians who had been naturalized in the United States and for the smaller proportion of foreign-born to total citizens than of foreign-born to total population,—due to the fact that practically all natives, but only a fraction of the foreignborn, are citizens,— it is estimated that 10 per cent of the immi­ gration into Canada of citizens of the United States other than returning Canadians consisted of United States naturalized aliens. Of the total number of immigrants into Canada from the United States during the period from July 1, 1909, to June 30, 1914, amounting to 510,799, 78.2 per cent, or 399,533, were citizens of 1

1914, p. 45.

U . S . Statistical Abstract,

T A B LE V C

a p it a l

brough t

in t o

C anada

by

I m m ig r a n t s , 190 0

to

19 13

F ro m th e U n ite d Sta te s Saloo n im m igran ts O thers

Fa rm ers a n d farm laborers Year N u m b e r1

1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 T o ta l. . . . 1

8,176 9.705 22,455 24,105 20,175 32,735 40,802 42,385 42,976 58,085 63,544 60,588 48,724 42,855

C a p ita l each)

($ 5 0 0

thou­ sands of dollars

4,088 4,852 11,227 12,052 10,087 16,367 20,401 21,192 21,488 29,042 31,772 30,294 24,362 21,427

Num ber

12,257 12,482 15,475 23,216 24,181 17,933 11,199 12,976 16,501 34,720 53,494 70,477 89,099 82,438

258,651

Immigration Facts and Figures,

1

C a p ita l each)

($ 1 0 0

thou­ sands oj dollars

1,226 1,248 1,547 2,322 2,418 1,793 1,120 1,298 1,650 3,472 5,349 7,048 8,910 8,244 47,645

i g n and

N u m b er *

2,537 3,338 3,660 4,397 4,414 4,882 5,977 7,436 5,164 4,174 3,3H 3,715 3,526 3,6 i4

C a p ita l ($ 5 ° ° each)

thou­ sands of dollars

1,268 1,669 1,830 2,198 2,207 2,441 2,988 3,7l 8 2,582 2,087 1,655 1,857 1,763 1,807 30,070

1 5 2 0 editions. Ad ju sted to calendar ye a r basis from

fiscal y e a r statistics on hypothesis of equal m o n th ly distribution. 1 i q i i , and of Im m ig ra tio n B ra n ch , D e partm e nt of

Immigration Pacts and Figures,

Annual Reports

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

47

the United States.1 Deduction of 10 per cent from this amount leaves 70.4 per cent. This will be used as an estimate of the per­ centage of the total immigration from the United States into Canada for the period under study which consisted of nativeborn Americans. From June 1, 1901 to June 1, 1911, the total 1 D ata obtained from C anadian official sources by U nited States Commissioner of Im m igration for Canada, given in A nn ua l Reports of U nited States Commissioner of Im m igration, 1911, p. 158; 1913, p. 170; and 1914, P- 212- W . W. H usband, Secretary of the U nited States Im m igration Commission, stated th a t about two thirds of th e em igrants to C anada from the U nited States were American citizens, th e rem ainder being alm ost entirely Canadian citizens and aliens of European birth who had resided for a tim e in the U nited States (American Economic Review, Supplem ent, M arch, 1912, p. 79). T he apparent discrepancy is explained by the fact th a t returned C anadians are not classed as im m igrants in the C anadian re­ turns. T A B LE V C

a p it a l br o u g h t

Year

in t o

C

anada

by

I m m i g r a n t s , 19 0 0

T o ta l..........

11,046 14.534 29,525 46,083 57,866 76,077 80,592 108,732 69,720 58,066 107,206 134,343 147,435 171,310

552 727 1,476 2,304 2,893 3,804 4,030 5,437 3,486 2,903 5,36o 6,717 7,372 8,565 53,626

of dolhrs

19,887 21,542 30,415 3S,942 36,075 40,918 45,048 74.388 46,626 42,447 61,266 78,458 105,261 154,494

497 538 760 898 902 1,023 1,126 1,860 I,l66 1,061 1,532 1,961 2,631 3,862

7,631 9,034 16,840 19,774 18,507 25,428 29,665 33,505 30,372 38,565 45,668 47,877 45,038 43,905

19,817

411,809

Fig u res for 1 9 0 9 1 9 1 0 estim ated from incom plete d ata . Ad ju sted to calendar yea r basis from fiscal y e a r statistics

th e In te rio r: T o t a l Saloon Passengers m inus R etu rn ed C anadians m inus T ou rists. and

19 13

Steerage Immigrants Total capital From Other Countries From Great Britain brought by immigrants; Capital ($50 Capital ($25 thousands of Number1 each)thousands Number1 each) thousands dollars of dollars

1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913

to

on hypothesis of equal m on th ly distribution.

48

C A N A D A ’S B A L A N C E OF T R A D E

immigration from the United States into Canada amounted to 633,190. Of this total, 445,765, or 70.4 per cent, is estimated as the immigration of native-born Americans. Subtraction from this amount of the amount of the increase in the same period in the number of natives of the United States in Canada, 175,781, leaves 269,984 as the number of natives of the United States who during this period returned to theUnited States or died in Canada. No vital statistics are published for Canada as a whole, and the statistics published by the provinces are not free from criticism. By taking the death-rates of 1911 for eight provinces1 and weighting them in proportion to their population in the same year, 13.9 per thousand is obtained as an estimated death-rate for Canada.2 In calculating the number of deaths of Americans in Canada during the period, allowance is made for the following factors: the probability that the death-rate is higher for persons in Canada born in other countries than for natives of Canada;3 for those who migrated to Canada during the period under con­ sideration, the length of time which elapsed between their admis­ sion into Canada and the final date of the period, June 1, 191 r; departures from Canada of natives of the United States between June 1, 1901 and June 1, 191 x. It is estimated on the basis of the available data covering these factors that the deaths in Canada amounted to 16 per thousand for 10 years for the natives of the United States already in Canada on June 1, 1901, before allowance for departures, and 13.9 per thousand, the Canadian rate, after allowance is made for those who returned to the United States.'1 For natives of the United 1 New Brunswick is excluded, because of inadequate statistics. T he recorded death-rate of Saskatchewan in 1911 was only 5.54 per thousand as com pared with death-rates in the sam e year in the neighboring provinces of 12.03 f°r M anitoba and 9.69 for A lberta. T he mean between these two rates, io.S6, is taken as the death-rate for Saskatchewan instead of the recorded death-rate. 3 T he calculation is made from d ata given in Canada Year Book, 1913, pp. 51,

,

100 101

.

5 T he death-rate advances, of course, with the aveiage age, once th e infancy period is passed. Adults preponderate am ong im m igrants; moreover, the chil­ dren of natives of the U nited States bom in C anada would be classed as natives of Canada. * T he bulk of the departures probably consist of recent arrivals who do not

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

49

States who entered Canada between 1901 and 1911 it is estimated, after allowance for. those who returned to the United States, that the average stay in Canada up to June 1, 1911, was 2] years.1 It is assumed that the Canadian death-rate applies to the lastnamed group. This gives an estimate of 33,470 for the total deaths in Canada of natives of the United States between June 1, 1901, and June 1, 1911.2 Subtraction of the number of deaths from 269,984, the number of natives of the United States who either left Canada or died in Canada, leaves 236,514 as the emi­ gration from Canada of natives of the United States between June 1, 1901, and June r, 1911. From the period beginning with July 1, 1909, there are avail­ able official United States statistics of United States citizens returned to the United States from Canada after having settled in Canada.3 These are as follows: Y e a r ending June 30

Number

191 0

191 1 191 2 191

3

191 4

22,832

.......................................................

31.432 38,317 5 4 .4 9 7

44.013

If, as was probable, the departures from Canada of natives of the United States were preponderantly in the later years of the period 1901 to 1911, these statistics, including, as they do, naturalized aliens, are lower for 1910 than those indicated by the estimates made here.4 Some natives of the United States, how­ ever, may leave Canada for countries other than the United States. Moreover, 1910 was the first year in which such statistics were collected, and it takes some time before the organization find conditions to their liking, and not of those who have been resident in Canada for a long period. 1 T he Canadian statistics of imm igration would show an average slay u p to June, 1911, of approxim ately 3 years if none died or returned to the United States before June i, i g n . 1 (127,899 X 0.0139 X 10) + (451.564 X 0.0139 X * i) = 33.470. 3 Reports of U. S. Commissioner of Im m igration for Canada in U nited States. Commissioner of Im m igration, Annual Reports, 1910, 1912, 1914* Sec Table VTII, p. 57, infra.

C A N A D A 'S B A L A N C E OF T R A D E

for the collection of a new set of statistics can be developed to function efficiently, especially where, among the difficulties to overcome, are a 3000 mile border and the reluctance of United States citizens to submit to cross-examination where it can be avoided without adverse effects.1 The figures given for the years subsequent to 1910 in general are confirmatory of the pres­ ent estimate. Emigration of Persons of British Nativity. To Great Britain. — Great Britain published statistics for the period under study giv­ ing the numbers of persons of British, including colonial, nation­ ality who entered the United Kingdom from Canada and who departed from the United Kingdom for Canada. The aggregate arrivals and departures of British tourists visiting Canada and of Canadian tourists visiting Great Britain should approximately balance each other in a series of years, and the recorded immi­ gration into Canada from Great Britain minus the excess of British departures for Canada over the arrivals in Great Britain from Canada should closely represent the emigration from Canada to Great Britain. Since April 1, 1912, Great Britain has collected immigration statistics, and for the period of this study covered by these statistics a check of the present calculation is possible. The total immigration into Canada from the United Kingdom from January 1, 1900, to December 31, 1913, of persons traveling steerage was 1,1x3,188. In the four years for which statistics of arrivals of saloon passengers by country of origin are available, passengers from Great Britain averaged 80 per cent of the total. Assuming that this percentage held true throughout the period 1 Cf. U. S. Commissioner of Im m igration for C anada, quoted in Report of U. S. Commissioner-General of Im m igration, 1910, p. 140: “ T he year also witnessed considerable growth in th e num ber of U. S. citizens who were returning lo their form er homes after previous residence in C anada, reports already subm itted to the B ureau showing th e to tal num ber to be, 22,832. I t is m y judgm ent, however, th at said num ber does not show even approxim ately the actual num ber of citizens re­ turning to the U. S. from Canada. As such passengers arc immune from th e opera­ tions of our immigration laws and regulations, they arc especially resentful of any attem p t a t exam ination on the p art of our officers, and the num ber of returning citizens reported represents only those who have m anifested willingness to answer such questions as would establish the place of imm ediate previous residence.”

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

51

for the proportion of saloon immigrants who came from Great Britain, the total saloon immigration from Great Britain for the period amounted to 48,167. This makes the total immigration from Great Britain for the period 1,161,310. The total excess of departures for Canada from Great Britain of persons of British nationality, over similar arrivals in Great Britain from Canada, amounted for the period to 1,003,591. Subtraction of this amount from the total given above for immigration into Canada from Great Britain leaves 157,719 as the total emigration from Canada to Great Britain during the years from 1900 to 1913. This total is distributed among the different years on the assump­ tion that the emigrants from Canada were in each year the same percentage of the total arrivals in Great Britain from Canada, giving the results presented in the table which follows below: T A B LE VI E

m ig r a t io n

from

C

anada

to

G

reat

B

r it a in

, 1900

A rrivals in the U nited Kingdom from Year

190 190 190 190 190 190 190 190 190 190 191 191 191 191

19 13

Em igrants from

C a n a d a of persons o f C a n a d a to the B r itis h n a tio n a lity 1 U n ite d K in g d o m 5

0 1 2 3 4 5 6 7 8 9 0 1 2 3

, ...................

T o ta l..................................................... 1

to

10,640 8,636 II,S63 13,786 18,397 J9,934 23,596 33,691 39,866 33,509 41,309 50,095 52,586 68,622

3,937 3,196 4,279 5,101 6,807 7,376 8,731 12,467 14,752 , 12,400 15,286 18,537 19,458 25,392 157,719

Statistical Abstracts for the United Kingdom.

1 T h e figures in this column are 37 per cent of the figures for corresponding years in the pre­ ceding column, which is the percentage of emigrants from Canada of the total arrivals in the United K ingdom from Canada for the entire period.

52

C A N A D A 'S B A L A N C E OF T R A D E

The present calculation shows an emigration from Canada to Great Britain in the two years 19x2 and 1913 amounting to 44,850. The British statistics for immigration, collected since April, 1912, show a total immigration into Great Britain from Canada, including persons not of British nationality, of 42,831 from April 1, 1912, to December 31, 1913, the months of January to March, 1912, thus not being included.1 Migration of aliens between Great Britain and Canada, except en route to or from a third country, is negligible in amount; from April 1 to Decem­ ber 31, 1912, of a total recorded immigration into the United Kingdom from Canada of 11,941, only 52 were aliens. The months of January to March of each year are months of little travel; in the fiscal year ended March 31, 1914, of the total im­ migration from Canada into the United Kingdom amounting to 27,969, only 3,998 arrived in these months. The results obtained by the present calculation coincide almost exactly, therefore, for the only part of the period for which a check is possible, with the British statistics. To Other Countries. — The estimate made above, of the emi­ gration to Great Britain from Canada of persons of British na­ tionality, including Canadians, leaves unaccounted for the sub­ stantial movement from Canada to the United States of persons who originally came from Great Britain to Canada. The Cana­ dian census returns showed an increase amounting to 394,507 from June, 1901, to June 1, 1911, in the population in Canada born in the British Isles.2 During the same period the total immigration into Canada from Great Britain, including saloon immigrants, amounted to 765,343. Subtraction, from this total, of 394,507, the amount of increase in Canadian population of British birth from 1901 to 1911, leaves 370,836 as the number of persons born in the British Isles who left Canada or died in Canada between 1901 and 1911. To account for the deaths in Canada, the death-rate estimated for Canada as a whole is ap­ plied for 10 years to the number of persons of British birth 1 These statistics and the other d ata in the rem ainder of this paragraph are from G reat B ritain: House of Commons Returns, A nnual Statements of Emigration and Immigration, 1912-1914. 2 Canada Year Book, 1913, p. 73: 390,019 in 1901; 784,526 in 1911.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

53

already in Canada in 1901, and for three years to the total im­ migration from Great Britain from 1901 to 1911.1 This gives 86,541 as the number of deaths in Canada,2 leaving 294,208 as the number who departed from Canada.3 From 1901 to 1911 it was estimated that approximately 75,000 persons born in the British Isles returned from Canada to the British Isles.4 This leaves 219,000 as the approximate estimate for persons of British nativity who left Canada for countries other than their mother country. Emigration of Canadians to the United States. — The United States census returns showed an increase in the population of Canadian birth in the United States between 1900 and 1910 amounting to 23,382.5 The annual average death-rate per thousand for the period 1901-1910 for the registration districts of the United States was approximately 15.6 Application of this rate for ten years to the population of Canadian birth in the United States in 1900 gives 177,188 as the total number of deaths for the period. Adding this to, the increase in population of Canadian birth gives 210,570 as the total net7 emigration of Canadians to the United States from 1900 to 1910. The follow­ ing statistics are available from American official sources bearing on the immigration into the United States from Canada: 1 T he statistics of imm igration indicate th a t the average stay in C anada before June 1, 1911, was four years w ithout allowance for departures from C anada or deaths in Canada before 1911. I t is estim ated th at the average stay was three years after allowance for these factors. 2 (390,019 X 0.0139 X 10) + ( 77 S . 2S S X 0.0139 X 3) = 86,541. 3 380,748 — 86,541 = 294,208. Since some of the imm igrants into Canada credited to the U nited States are of British nationality, this calculation underesti­ m ates the total imm igration into C anada, and consequently the em igration from Canada, of persons of British nationality. As all of the imm igrants from the United States who are not natives of the U nited States are classed in a subsequent section as of nativity other than British or American, this underestim ate should be offset by an equivalent overestim ate of em igration of persons born in countries other than the United States, G reat Britain, o r Canada. 4 See T able V I, p. 51, supra. s U. S. Im m igration Commission, The Immigration Situation in Canada, p. 36 (61 Cong. 2d Sess., Sen. Doc. 469), and U .S . Statistical Abstract, 1914, p .49 (1,181,255 in 1900; 1,204,637, in 1910). 6 Ibid ., p. 75. 7 I . e., over and above C anadians returned to C anada.

54

C A N A D A ’S B A L A N C E OF T R A D E T A B L E V II I m m ig r a t io n i n t o t h e U n i t e d S t a t e s f r o m C a n a d a , Y e a r ending June 30

T o ta l1 (admissions)

190 0 190 1

396

540

190 2

636

190 3

1,058

190 4

2,837

190 5

2,168

190

6

5 ,0 6 3

190

7

1 9 ,9 1 8

190 8 *909............................................................. I 9 I° ............................................................. *9” ............................................................. J9i 2............................................................. 1913............................................................. J9*4............................................................. .

38,510 5i,94i 56,555 56,830 55,990 73,802 86,139 452,383

19 0 0

to

19 13

Canadian citizens, applications for adm issiona

—

___

___ —

___ -------_____

13,052 24,118 44,340 44,439 42,649 44,701 45,893 259,192

Includ es all arrivals of im m igrants from C anada. R eturned A m erican citizen s arc n ot classed a s im m igrants. * A nnual Reports of th e U . S. C om m issioner of Im m igration. C anadian citizens on ly. Includes ab ou t 4 per cen t w ho were debarred from entry. 1 U . S . Statistical Abstract.

These figures do not appear confirmatory of the estimates made here. They are obviously defective, however, for the ear­ lier years of the period at least, sincc it is inconceivable that, with the close relations which exist between the populations of Canada and the United States along 3,000 miles of common boundaries, less than 6,000 Canadians and alien residents of Canada should migrate to the United States during five years. For the later years these statistics and the present estimate can be reconciled. Emigration from Canada of Natives of Countries other than the United Stales and Great Britain .—The census returns show an

increase amounting to 311,826* in the population in Canada, of natives of foreign countries other than Great Britain and the United States. During the same period the total immigration of such persons into Canada, including 20 per cent of the total 1 Canada

Year Book,

1913, p. 73: 166,414 in 1901; 478,240 in 1911.

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

55

saloon immigrants 1 and including also 29.6 per cent of the total immigration from the United States,2 amounted to 689,328. Subtraction, from this amount, of 311,826, the amount of increase of such persons in Canada from 1901 to 1911, leaves 377,502 such persons who left Canada or died in Canada between 1901 and 1911. Application of the Canadian death-rate, 13.9 per thousand, for ten years to the number of such persons already in Canada in 1901, and for three years to the- total number of such persons immigrating into Canada during the period, gives 51,877 as the number of deaths in Canada,3 leaving 325,625 as the total emi­ gration of such persons from Canada during the period from 1901 to 1911. Total Emigration from Canada. — The present calculation has accounted so far for: (1) the total emigration to the United States of natives of the United States from June 1, 1901, to June r, 1911; (2) the total emigration to the United States of natives of Canada from 1900 to 1909 inclusive; (3) the total and annual emigration to Great Britain from 1900 to 1913 inclusive; (4) the total emi­ gration of natives of Great Britain to other than their home country from June 1, 1901, to June 1, 1911; and (5) the total emigration of natives of countries other than Canada, Great Britain, or the United States from June 1, 1901, to June 1, 1911. There remain the tasks of estimating the emigration to countries other than Great Britain for the periods from January 1,1900, to June 1, 1901, and from June 1, 1911, to December 31, 1913, and of distributing the totals for the period 1901 to 1911 among the individual years. There are no statistical data available to aid in building up estimates for the first period or for the distribution of the totals among the years from 1901 to 1911, and recourse must be had to arbitrary guesses. It is known that there was a heavy movement of population out of Canada following the de­ pression of 1907 and again in the latter part of 1913, and weight will be given to this guide. For the later years of the period and especially for the period from June 1,1911, to December 31,1913, the United States statistics of immigration are of assistance. The 1 See supra, p. 50. * (166,414 X 0.0139

X

10)

X

5 Sec supra, p. 48. (689,328 X 0.0139 X 3) = 51,877.

56

C A N A D A 'S B A L A N C E OF T R A D E

estimate of emigration, made on the basis of the preceding cal­ culations and of what other information is available, is presented in Table VIII.1 The estimate reached here for total emigration from Canada, 1,752,719, is higher than was expected. Coats2 makes a rough estimate of 1,262,994, for the total emigration from Canada for ' approximately the same period. But the chief discrepancy be­ tween his estimate and the present one is in the figures of emi­ gration to the United States, and Coats bases his estimate chiefly on the American statistics for the earlier years of the period, with a result in totals which are demonstrably too low.3 Capital taken out by Emigrants. — Coats accepts Paish’s esti­ mate of $200 as the amount taken with them by emigrants who leave by ocean ports. On the assumption that the immigrants from the United States into'Canada are mainly agriculturists and that those who return are therefore also mainly of the agricultural class, he estimates that they take out with them S500 in cash. For the remainder of the emigration to the United States, he estimates that they take out on the average $50 each, based on the amounts of money reported to the United States immigration agents at the border. The first two of these estimates seem to the writer to be too high. Over one half of the immigrants from the United States are of the non-agricultural laborer class,4 and it is probable that these are much more migratory than farmers, who can establish themselves in Canada only at considerable expense and must make sacrifices to leave. Paish’s estimate of $200 as the average amount of money taken out per capita by departing emigrants also appears to be too high, when due con­ sideration is given to the fact that there is a smaller relative movement into Canada than into the United States, of such 1 See p. 57, infra . 1 Cost o f Living Report, vol. ii, pp. 897-900. 3 E.g., C oats, basing his calculation on an estim ate for 1909 of the U. S. Com­ missioner of Im m igration for C anada, takes 150,000 as the num ber of Americans who returned to the U. S. from C anada from 1900 to early in 1914. T he later U. S. .statistics, which are adm ittedly too low, give a total of 191,091 for the Americans who returned from C anada to the U nited States during the five-year period from Ju ne 30, 1909, to June 30, 1914 alone. See supra, p. 49. * See supra, p. 43.

57

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

persons as the many Italians who come to stay only until their savings have reached a satisfactory amount. The bulk of the emi­ gration from Canada is probably due to failure and unemploy­ ment in Canada, and not to the accumulation of what are, for persons of the immigrant class, modest fortunes in their home countries. In view of these considerations it is estimated that $100 per capita is a sufficiently generous estimate of the amount of money taken out of Canada by emigrants. This gives the results presented in the following table: T A B L E V III E m ig r a tio n fr o m C a n a d a , a n d C a p i t a l t a k e n o u t o f C a n a d a b y E m ig r a n t s , 19 0 0 t o 1 9 1 3 E m igration from C anada Y ear

N a tiv es of G reat B ritain

N a tiv es of N a tiv es of U nited C anada T o G reat S tates B ritain

T o other countries

N a tiv es of T o ta l em i­ o th er gration cou ntries

C apital taken ou t of C anada thousands of dollars

190 0

2 ,0 0 0

5 ,0 0 0

3 .9 3 7

5 ,0 0 0

5 ,0 0 0

2 0 ,9 3 7

2 ,0 9 4

1 901

3 ,0 0 0

5 ,0 0 0

3 .1 9 6

5 ,0 0 0

5 ,0 0 0

2 1 ,1 9 6

2 ,1 1 9

3 ,4 2 8 4 ,5 1 0

19 0 2

S ,o o o

5 ,0 0 0

4 .2 7 9

1 0 ,0 0 0

1 0 ,0 0 0

3 4 ,2 7 9

1903

1 0 ,0 0 0

1 0 ,0 0 0

5 ,1 0 1

1 0 ,0 0 0

1 0 ,0 0 0

4 5 , 10 1

6 ,8 0 7

190 4

1 0 ,0 0 0

1 0 ,0 0 0

19 ° 5

2 0 ,0 0 0

1 5 ,0 0 0

190 6

3 0 ,0 0 0

1 5 ,0 0 0

2 0 ,0 0 0

6 1 ,8 0 7

6 ,1 8 1

2 0 ,0 0 0

2 0 ,0 0 0

8 2 ,3 7 6

8 ,2 3 7

n ,3 7 3 1 5 ,2 4 7

1 5 ,0 0 0

7 ,3 7 6 8 ,7 3 1

2 0 ,0 0 0

4 0 ,0 0 0

H 3 ,7 3 i

2 0 ,0 0 0

1 2 ,4 6 7

3 5 ,o o o

5 0 ,0 0 0

1 5 2 ,4 6 7

4 0 ,0 0 0

' 4 ,7 5 2

4 0 ,0 0 0

7 0 ,0 0 0

2 0 9 ,7 5 2

2 0 ,9 7 5

5 0 ,0 0 0

1 2 ,4 0 0

3 5 ,o o o

5 0 ,0 0 0

1 8 7 ,4 0 0

1 8 ,7 4 0

4 0 ,0 0 0

4 0 ,0 0 0

1 5 ,2 8 6

4 5 ,0 0 0

5 0 ,0 0 0

1 9 0 ,2 8 6

1 9 ,0 2 9

4 0 ,0 0 0

4 0 ,0 0 0

i 8 ,5 3 7

5 0 ,0 0 0

5 0 ,0 0 0

1 9 8 ,5 3 7

1 9 .8 5 4

19 12

5 0 ,0 0 0

4 0 ,0 0 0

5 0 ,0 0 0

5 0 ,0 0 0

2 0 9 ,4 5 8

2 0 ,9 4 6

9 13

5 0 ,0 0 0

4 0 ,0 0 0

1 9 ,4 5 8 2 5 ,3 9 2

6 0 ,0 0 0

5 0 ,0 0 0

2 2 5 ,3 9 2

2 2 ,5 3 9

3 8 0 ,0 0 0

33S.OOO

X 5 7 ,7 i9

4 0 0 ,0 0 0

4 8 0 ,0 0 0

1 ,7 5 2 ,7 X 9

1 7 5 ,2 7 2

190 8

3 5 .0 0 0 4 5 .0 0 °

190 9

4 0 ,0 0 0

19 10 19 11

19 0 7

1

T o ta l. . .

N

o n - C o m m e r c ia l

R e m it t a n c e s

from an d to

C anada

Aliens in Canada remit each year important amounts of money to their relatives and friends in their native countries. In many cases the sole or chief wage-earner emigrates to Canada and sup­ ports the remainder of his family by his remittances. The most

58

C A N A D A 'S B A L A N C E OF T R A D E

comprehensive study of such remittances is that made by C. F. Speare in 1908 for the United States.1 He estimated that about 30 per cent of the remittances were made by postal money-orders, and the remainder through private banks, express companies, consular offices, charitable associations, and by sending currency through the mail. The illiterate or otherwise ignorant immi­ grants from eastern and southeastern Europe make least use of the facilities offered by the post office and prefer to make their remittances through private bankers of their own race and speak­ ing their own language. Such immigrants form a much larger proportion of the alien population in the United States than in Canada. In the immigration into Canada the British and the Americans are in predominant numbers, and these are presum­ ably able to use the less expensive services of the post office. On the other hand, remittances to the United States from Canada can be sent, by those who have banking accounts, by ordinary domestic check without any more formality than is involved in paying a domestic bill by check. There are available for Canada, statistics of the amounts of postal money-orders issued in Canada and payable in other countries. Coats * uses these statistics as the sole basis of his estimate for remittances from Canada to other countries. He shows that there is a considerable degree of correlation between the annual immigration by countries of origin and the annual remittances in postal money-orders to these countries.3 Coats makes no reference to remittances other than by postal money-orders, and deducts 40 per cent from the amounts of postal money-orders payable abroad, to cover remittances for small business transactions. The Canadian imports of parcels and packages by post office and express, which would cover most of 1 North American Review, January, 1908, pp. 106-116. * Cost o f Living Report, vol. ii, pp. 892-896. 1 C oats shows th at the rem ittances by postal m oney-order were m uch greater in proportion to imm igration for those countries like Italy and A ustria-Hungary, whose nationals m ake th e highest per capita rem ittances, according to Speare. A much closer correlation would have been shown if, instead of com paring annual imm igration into C anada with rem ittances, it had been possible to com pare total population in C anada of persons of these nationalities year by year w ith rem ittances.

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

59

these small transactions, amounted in value for the period under study to only 13 per cent of the total issue of money-orders pay­ able in other countries. Over 88 per cent of these parcels were imported from the United States, and a substantial portion of the payments therefor was unquestionably made by check drawn on Canadian banks.1 Beginning with 1911 there are available official statistics of the amounts of foreign money-orders issued by express companies in Canada. For the three years 19x1 to 1913, these amounted to 7.3 per cent of the foreign money-orders issued by the post office. For the United States, Speare estimated at 28 to 35 per cent the proportion of remittances made by express companies to remit­ tances made through the post office. This confirms the opinion expressed above that there is relatively greater use of the post office for making foreign remittances in Canada than in the United States. Further confirmation is furnished by the fact that the amount of foreign money-orders issued through the post office per capita of foreign born population was $7.38 in the United States in 1910 as compared with Si 1.50 in Canada in the same year.2 It is further to be noted that foreign money-orders are issued to cover such items as traveling expenses abroad of Canadians and the money taken from Canada by departing emigrants, which are accounted for elsewhere in this study. Taking all of these phases of the problem into consideration, it is estimated that the total remittances to friends abroad exceed by only 50 per cent the amount of foreign postal money-orders issued in Canada, including the amount remitted in settlement of small commercial transactions. The remittances sent to Canada from abroad are much smaller in amount than the remittances sent abroad from Canada, as is to be expected in a country having a large immigrant popula­ tion. The only data available for an estimate of the amount of 1 T he statistics of these im ports are published in the A nuual Trade and Naviga­ of the C ustom s D epartm ent. 5 C om puted from Census and money-order statistics in U . S . Statistical Abstract, 1914, and Canada Year Book 1913

tion Returns

6o

C A N A D A ’S B A L A N C E O F T R A D E

such remittances are the statistics of postal money-orders issued in foreign countries payable in Canada. During the period under study, 74 per cent in amount of these money-orders was sent to Canada from the United States and 16 per cent from Great Britain. These remittances can be partly explained as funds sent to aid emigrants to Canada in making a start. A part of the remittances from the United States also consisted undoubtedly of funds sent by Canadians in the United States to their relatives at home. Shipments of parcels are not separately classified either in the Canadian export statistics or in the United States import statistics. The British trade-returns classify imports of parcels separately only for goods free of duty, but there are few commodities exported from Canada which are dutiable under the British tariff. The imports of such parcels from Canada from T A B LE IX N

o n - C o m m e r c ia l

R

e m it t a n c e s

to

and

from

C

anada,

1900

to

19 13

I n thousands oj dollars

Y ear

P o sta l m oney-orders issued in C anada payable abroad >

I9° ° ........................................... 1901........................................... >902...........................................

1 9 0 3 ................................................................

3.346 4.379 5,617 7.027

‘904........................................... 8,453 190 5 10,081 190 6 12,412 !907........................................... 17.003 1908........................................... 16,572 >909........................................... 18,542 I9 I° ........................................... 23,716 19” ........................................... 29,914 1912........................................... 37,746 *913........................................... 42,498 Total................

R em ittan ces sen t abroad from C anada*

R em ittan ces to C anada sent from abroad*

1 0 ,5 4 0

4 ,9 0 0

5,019 6,568 8,425

12,679 15,121 18,618 25,504 24,858 27,813 35.574 44,871 56,619 63,747 355.956

2,531 3,084 4,090

5.399 6,067 6,994 7,814 7,829 7,984 8,560 8,8151 9,136* 7.9 5 0 4 9I.I53

A djusted to calendar year basis from fiscal year sta tistics on th e hypothesis o f equal m onthly distribution. * 150 per cent of th e am ounts in th e preceding colum n. * Canada Year Books, P o sta l M on ey O rders issued in other countries, payable in C anada. A d­ justed to calendar year basis from fiscal year sta tistics on th e hypothesis of equal m on th ly distribution. * Includes sm all am ou nts of British P ostal N o tes cashed in C anada, d ata ob tain ed from Canada: P o st O ffice D ep t., Annual Report, 1 9 14 . 1 Canada Year Books.

61

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

1902 to 1913 amounted in value to about 35 per cent of the amount of money-orders issued in Great Britain payable in Canada during the same period. The movement of parcels to the United States was probably in much greater volume, even relatively to the greater amount of remittances sent from the United States. A greater allowance has to be made, therefore, for remittances arising out of commercial transactions in the case of foreign money-orders payable in Canada than in the case of Canadian money-orders payable abroad. It is estimated that the non-commercial remittances to Canada from abroad by other methods than through the post office were offset by commercial remittances sent through the post office, and the figures of re­ mittances by postal money-order will be taken as a measure of the total non-commercial remittances. T A B LE X T h e B a l a n c e o f N o n -C o m m e r c ia l T r a n s a c t io n s ,

1900

to

19 13

I n thousands of dollars

D eb its Y ear

N on-com C apital tak en ou t m crcial it­ of C anada tanrem ces sent by em i­ abroad gran ts from C anada

C redits

T o ta l

C apital brought into C anada by im m i­ gran ts

N on­ com m er­ cial re­ m ittances sen t to C anada from abroad

1 9 OO

2 ,0 9 4

5 .0 1 9

7 ,H 3

190 1

2 ,1 1 9

6 ,5 6 8

8 ,6 8 7

7,6 3X 9 ,0 3 4

3 ,0 8 4

190 2

. 3 .4 2 8

1 1 ,8 5 3

1 6 ,8 4 0

4 ,0 9 0

4 ,5 1 0

8 ,4 2 5

190 3

1 0 ,5 4 0

1 5 ,0 5 0

1 9 ,7 7 4

4 ,9 0 0

19 0 4

6 ,1 8 1

1 2 ,6 7 9

1 8 ,8 6 0

1 8 ,5 0 7

1905

1 5 ,1 2 1

2 3 ,3 5 8

6 ,0 6 7

1909

8 ,2 3 7 i i ,3 7 3 1 5 ,2 4 7 2 0 ,9 7 5 > 8 ,7 4 0

2 5 ,4 2 8

5 ,3 9 9

19 10

1 9 ,0 2 9

1906 19 0 7 190 8

D eb it

2 0 ,9 3 0

2 4 ,6 7 4 2 3 ,9 0 6 3*1495

9 ,6 2 4

6 ,6 6 8

5 ,0 4 6 8 ,1 3 7

2 9 ,9 9 1

2 9 ,6 6 5

6 ,9 9 4

3 6 ,6 5 9

4 0 ,7 5 1 4 5 ,8 3 3 4 6 ,5 5 3 5 4 ,6 0 3 6 4 ,7 2 5 7 7 ,5 6 5

3 3 ,5 0 5 3 0 ,3 7 2 3 8 ,5 6 5 4 5 ,6 6 8 4 7 ,8 7 7

7 ,8 1 4

4 J .3 I 9

7 ,8 2 9

3 8 ,2 0 1

7 .9 8 4 8 ,5 6 0

4 6 ,5 4 9 5 4 ,2 2 8

8 ,8 1 5

5 6 ,6 9 2

8 ,0 3 3

5 4 ,1 7 4 5 1 ,8 5 5

2 3 ,3 9 i 3 4 ,4 3 i

5 0 2 ,9 6 2

7 3 ,8 6 6

2 4 ,8 5 8 2 7 ,8 1 3

* 9 .8 5 4

19 12

2 0 ,9 4 6

5 6 ,6 1 9

2 2 ,5 3 9

6 3 ,7 4 7

8 6 ,2 8 6

4 3 ,9 0 5

9 ,1 3 6 7 ,9 5 0

1 7 5 .2 7 2

3 5 5 ,9 5 6

5 3 1 ,2 2 8

4 1 1 ,8 0 9

9 i,i5 3

4 5 ,0 3 8

C redit

3 ,0 4 9 3 ,4 3 1 9 ,0 7 7

1 0 ,1 6 2

I 2, I l 8

1 8 ,6 1 8

3 5 ,5 7 4 4 4 ,8 7 1

1913

T otal

2 5 ,5 0 4

19 11

T o ta l. .

2 ,5 3 1

Ilalances

568

7 ,6 3 2 4 375

4 5 ,6 0 0

62

C A N A D A ’S B A L A N C E O F T R A D E

Table IX presents the estimated non-commercial remittances sent abroad from Canada and sent to Canada from abroad. T h e Balance

of

N

o n - C o m m e r c ia l

T r a n s a c t io n s

Table X summarizes the statistical results obtained in the fore­ going discussion of the non-commercial items in the Canadian balance of international indebtedness, and strikes a balance be­ tween the debit and credit items.

CHAPTER IV F R E IG H T , IN S U R A N C E . A N D T O U R IS T E X P E N D IT U R E S I ntroductory

transactions in services, although often over­ looked or underestimated, are an important element in the inter­ national balance of indebtedness. The movement of physical goods in international commerce largely monopolizes public attention, not because sales of services are of little consequence in the volume of international transactions, but chiefly because of the practically universal limitation of official statistics to the “ visible” items in the international trade balance.1 For the purpose of determining the balance of international indebted­ ness, the purchase or sale of services is, dollar for dollar, of identi­ cal significance with the purchase or sale of goods. In this section an estimate will first be made, year by year, for each item in the international balance of service transactions, dealt with under the following headings: freight payments, insurance payments, tourists’ expenditures, interest payments, and sundries. All the partial balances then having been esti­ mated, it will be possible to proceed to a computation of the total international balance of indebtedness, and to an analysis of this balance into its constituent elements of Canadian borrow­ ings from abroad and Canadian loans abroad. In the calculation of the various items in the balance of service transactions, the same statistical difficulties are encountered and the same methods are used for their solution as in the calculation of the balance of non-commercial transactions.2

I n t e r n a t io n a l

1 A rgentina offers the only instance known to the w riter where continuous and comprehensive statistics of export and im port services are officially collected and published. T he British Board of T rade has recently begun the collection and pub­ lication of similar statistics for G reat B ritain. 3 Sec p. 40, supra. 63

64

C A N A D A 'S B A L A N C E OF T R A D E

F r e ig h t C h a r g e s

Methods of Estimating Freight Charges.— Canada must make

payment abroad for services rendered to her in connection with the transportation of imports to Canada, and per contra she receives payment from abroad for services which Canadian ships or railroads render in connection with the transportation of her own products to foreign countries.1 The calculation of the amounts of these payments is beset with many complexities and difficulties. British economists have been struggling for many years with the task of ascertaining the amount of annual income derived by Great Britain from abroad through the services of her merchant marine.2 The methods which they have developed are not applicable, however, to the Canadian situation, either be­ cause the nature of the problem is different or because the essen­ tial statistical data are lacking. For Great Britain the main problem is to discover what are the earnings of British shipping used in carrying freight for other countries. In Canada the chief problem is to discover what are the payments made to other countries on account of transporta­ tion services performed for Canada, since only a small fraction of Canada’s foreign trade is borne in Canadian vessels. One method followed by British writers is to apply to the entire British tonnage engaged in foreign trade the figures for earnings per ton ascertained for a few typical ships. But this method is not applicable to the present problem. No statistics exist of Canadian-owned vessels engaged in foreign trade. For Canada, moreover, overland transportation is important. Great Britain and Canada differ in their methods of computing import values: the British import statistics are based on c. i. f. values, and 1 Including insurance charges and commissions for brokers’ services on imports, but not on exports, because m ost of these services arc rendered by non-Canadian, chiefly B ritish, com panies. Paym ents for passenger transportation are not dealt w ith separately in this study, but arc sufficiently accounted for, it is believed, in the estim ates of tourists’ expenditures and of capital carried w ith them by m igrants. s Cf. especially: Sir R obert Giffen, “ On the Use of Im port and Export Statistics," Journal of the Royal Statistical Socicly, June, 1882; C. K . H obson, The Export of Capital, 1914, pp. 171-187; “ T he M easurem ent of th e Balance of T rade,” Economica, M ay, 1921.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

65

therefore cover insurance and freight added to the invoice value of the imports; the Canadian import statistics are based on f. o. b. values, and therefore leave unaccounted for the insurance and freight which Canadians must pay on such of their imports as are carried by foreign vessels. Another method used to ascertain the amount of freight and insurance charges rests on the reasoning that “ since the imports and exports of the whole world are, for the most part, the same goods valued at the point of arrival and departure respectively, the excess of value of imports should give a rough measure of the difference of valuation due to the cost of ocean carriage, including freight, insurance, and other charges.” 1 If this reasoning be accepted, the percentage of freight and in­ surance charges to total imports can then be calculated, and if the further assumption is made that the freight and other charges for the country under consideration and for the world at large form an approximately uniform percentage of the total imports of the two respectively, the amount of freight and other charges on imports for that country can then be readily calculated from the statistics of imports. Sir Robert Giffen, in the essay referred to, uses this method for ascertaining the total earnings of the world’s shipping from the transportation of freight, and also the other charges connected with ocean transportation. He then obtains an estimate of the British share of these earnings by using the percentage of British shipping tonnage to world tonnage, after having made an allow­ ance for the amount of the difference between world imports and exports to be attributed to miscellaneous charges. He fails to allow, however, for shipments by land transportation and for the large fraction of the world’s shipping engaged in internal trade which should have been excluded from the calculation. Giffen, however, tests his estimate by other methods of calculation not adapted to the Canadian situation because of the absence for 1 Edgar Cram m ond, The British Shipping Industry, London, 1517, p. 27. The excess of value of the im ports should also cover the cost of transportation from the point of departure to the point of arrival, where transportation is wholly or partly by rail or inland shipping.

66

C A N A D A 'S B A L A N C E OF T R A D E

Canada of the abundance of information available in dealing with British shipping. C. K. Hobson1follows the method described above of ascertain­ ing the world’s freight bill and finds the British share therein by applying the percentage of clearances and entrances of British ships to total clearances and entrances at the principal ports of the world. He also checks his estimate by methods not available for a Canadian study because of the absence of the necessary statistics. In the study of the balance of trade of the United States made for the Harvard University Committee on Economic Research in 1919,2 the shipping freight charges payable to and paid by the United States are also calculated in part by the same method of deducting world exports from world imports. But instead of dividing the figure thus obtained by the total world imports to obtain the percentage of freight charges to imports, the percentage which the difference between world imports and world exports was in 1907 of the total world foreign trade, export and import, is used as an index of the ad valorem percentage of freight charges for both imports and exports. Granting the validity of the gen­ eral method, this departure from the usual procedure cannot be justified. The total world imports and the total world exports are the same goods valued both at the points of departure and destination. Taking the world as a whole, freights are paid only on the imports. To take the percentage of the total freight charges to the total of exports and imports is to divide by almost two 3 the true burden of freight costs. If any American shipping was engaged in the commerce between countries other than the United States, this method is defective also in that it does not account for the earnings from this commerce. Moreover, this study makes no allowance for the transportation charges on trade with Canada and Mexico by land routes. 1 Op. cit., p. 1742 C. J. Bullock, J. H . W illiams, and R . S. Tucker, “ T he Balance of T rade of the U nited States,” T he H arvard Review of Economic Statistics, Prelim inary Vol. No. 3 , p.

231.

3 Almost tw o, and not exactly two, because world im ports, including as they do freight costs, arc greater than world exports.

B AL A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

67

All these writers agree in using as the primary basis for their estimates of freight charges the differences between total world imports and total world exports. It is a necessary presupposition of this method that export statistics cover f. 0. b. values and im­ port statistics are for c. i. f. values. While nothing but a rough estimate is possible by any method, with statistics as inadequate as they are, there are too many serious defects in the primary data used in this method to justify its use. There are no authori­ tative compilations of the necessary statistics.1 There are im­ portant divergencies in the methods of computing commerce statistics used by various countries. The United States, Canada, British South Africa, Cuba, Mexico, and the Philippines collect import statistics on the basis of f. o. b. values, and the total im­ ports of these countries comprise an appreciable percentage of the total world imports; the freight charges on the imports of these countries would not be taken into account in a calculation of this sort. In many cases, commerce statistics are collected on the basis of arbitrary valuations. Different fiscal years and dif­ ferent definitions for statistical purposes of imports and exports render non-comparable the commerce statistics of different countries. Even if all these shortcomings were absent, the lack of justification in applying a percentage true for the world, to individual countries varying widely in the degree to which their trade is bulky or comes from close-by regions or is frontier traffic, leaves little ground for any confidence in the value of such com­ putations.2 > No easy solution of the problem has been found for Canada. The only guide is Mr. Coats’ guess that from 1900 to 1914 the excess of Canada’s freight payments to other countries, over pay1 T his is confirmed by the strikingly different results obtained b y different writers using this m ethod for years n ot far apart. See p. 78, infra. . 5 T o be consistent w ith itself, the m ethod criticized here should divide the dif­ ference between world im ports and world exports by th e world im ports to obtain the ad valorem percentage of freight charges to im port values for any country and by the world exports to obtain a similar percentage for th e freight earnings on carriage of exports. T he freight charges should be a smaller percentage of c. i. f. im port values than of f. o. b. export values. N one of the w riters using this m ethod seems, however, to have m ade use of this refinement.

68

C A N A D A 'S B A L A N C E OF T R A D E

ments to Canada by other countries, was S6o,oco,ooo.1 The fact that the calculation of balances of trade has received greatest attention in Great Britain, an insular country, has led all the writers into the error of neglecting all except ocean freight charges.2 For Canada in particular the overland and Great Lakes freights on the imports of cotton from the American south, coal, coke,, and steel from Pennsylvania, corn from the Middle West, tobacco from Virginia and Kentucky, and fruit from Cali­ fornia and Florida, represent.long and expensive freight hauls, the charges for which must be settled abroad, alike with the charges on the less bulky water-borne imports from Great Britain. •This further complicates the problem of reaching a satisfactory estimate. The method used in the present study to ascertain the freight charges on imports is admittedly inadequate, but appears to the writer to be the best available under the circumstances. The first step taken was to collect for 1907, a normal year in about the middle of the period studied, freight rates and import values by weight or measurement on a few representative commodities, including both bulky and light articles, and including railroad rates and import values for goods imported from the United States, and ocean freights and import values for goods imported from Great Britain. In order to make the necessary calculation, it was essential to obtain freight quotations: (1) to Montreal, as the chief point of import in Canada; (2) by weight, or, if by measurement, for commodities for which the conversion rate from a measurement to a weight basis could be calculated; and (3) for commodities for which the official import statistics re­ ported imports both by quantities and by values. These re­ strictions on the data which could be used still left remaining representative data from which could be roughly computed the ad valorem percentage of freight charges to import values for 1 Cost of Living Report, vol. ii, p. 901. This figure seems to the w riter a serious underestim ate. 2 E .g ., Coats’ study for Canada; for the United States, the studies of Sir George Paish for the N ational M onetary Commission, 1910 (61st Cong. 2d Sess., Sen. Doc. 579), and of the H arvard group referred to above; E dgar Cram m ond, Sir R obert Giffen, and C. K . H obson, for G reat B ritain.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

69

the iron and steel and the cotton textile groups for imports from both Great Britain and the United States. These groups com­ prise the bulk of the imports from Great Britain but are not closely representative of the imports from the United States. The next step taken was to assume that the results obtained for the iron and steel and the textile groups were adequately repre­ sentative for all bulky and for all light commodities, respectively, and from the import statistics for 1907 to calculate the percent­ ages of the imports from Great Britain and the United States which were bulky and light respectively, and thus to obtain weighting factors to be used in applying these results to the total imports from these countries. The results obtained are presented in Table XI. At first glance the higher ad valorem percentage indicated for freight charges on imports from the United States appears to discredit the accuracy of the index. But it should be noted that rail rates are higher on the same commodities than ocean freights, and that bulky articles predominate in the imports from the United States, whereas this is not true of imports from Great Britain. Over 75 per cent of the imports from Great Britain con­ sist of textiles and manufactures of iron and steel, which are the groups represented in the index presented above. The remainder of the imports from Great Britain consist, to a predominant de­ gree, of expensive manufactured products on which the ad valorem rates would probably be even lower than the average reached on the basis of the commodities here chosen. Among the imports from the United States not directly represented in the index, but which are of considerable importance, are coal, coke, oil, fruits, cotton, books and periodicals,1 corn, drugs and chemicals, binder twine, lumber, meat, and a wide range of other commodities of relatively small value per unit of weight or bulk; and some of these imports come from parts of the United States at a great distance from the point of entry into Canada.2 1 G enerally sent by express or post a t higher rates th an the freight rates. 2 “ C anada im ports very large quantities of various classes of both raw and m anufactured goods from the United States, some of which arc freighted b ut a few miles from the International border, while in other cases they are conveyed thou­ sands of miles, the freight ranging from less than half a dollar to more th an $20 a

70

C A N A D A 'S B A L A N C E OF T R A D E

The imports from countries other than the United Kingdom and the United States must come by ocean routes. These im­ ports come on the average from greater distances than British imports, and they also consist to a larger degree of bulky comton; or on a percentage basis, from less than i per cent to more than 100 per cent in value.” Final Report, Dominions Royal Commission, 1917, p. 166. G reat B ritain: Parliamentary Papers, Cd. 7971. T A B LE X I Im p o rt

V alues and

F r e i g h t R a t e s , 19 0 7

Ocean Commodity group

Unit

Average import value 1

Average freight rate*

lo n g io n

$ 53-83

$2.60

Percentage Weights* of freight charges to import value

Final results

G r e a t B r ita in : M a n u fa c tu r e s o f Iro n an d S t e e l. . . C o t to n T e x t ile s . . . .

1000 y d s .

94-63

2 .18 «

5-6

40

224

2-3

60

138

100

362

T o t a l ............................. P e r c e n t .......................

3-6

R ail

United States: M anufactures of Iron and Steel .. . short ton $50.30 $3.06 C otton T e x tile s.. . . 100 lbs. 33- u 4 0.36J T o ta l........................... Per c e n t ....................

in

5-8 1.1

90 10 100

522 no 632 6-3

1 Com puted from C a n ada: Trade and Commerce Report, for fiscal y e a r ending M a r c h 3 1 , 1 5 0 8 . 1 Com puted from d ata in Report o j British Trade Commissioner to Canada on the Trade o f Canada 1007 (G r e a t B r ita in : Parliamentary Papers, C d . 3 8 6 8 ). * W eig h ts are according to th e rela tive im portance in the im ports of 1 0 0 7 , of b u lk y and ligh t com ­

modities.

I t is assumed in using these w eights th a t rates on iron and steel com m odities a rc represen­

ta tiv e of rates on a ll b u lky commodities and th a t rates on cotton textiles are representative of rates on a ll light commodities. * B ased on conversion ra te from m easurement to weight basis, i lb . t a re =

rate com puted from d a ta in Cost of Living Report, v o l. ii, p. 4 6 laneous Series, N o . 0 2 , "S to w a g e o f Cargoes,” pp. 2 8 3 , 2 8 7 .

3 . 3 ya rd s. Conversion

and U . S . D e p t, o f Com m erce,

.Miscel­

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

Jl

modities. Of the imports in 1907 from these countries, 60 per cent were relatively bulky, 40 per cent light, as compared with 40 per cent and 60 per cent respectively for the imports from Great Britain. On the assumption that the rates for bulky and for light commodities from these countries were the same as for similar imports from Great Britain, the percentage of freight charges to imports would be 4.3. After allowance for the greater distances, it is estimated that for imports from countries other than Great Britain and the United States, the percentage of freight charges to imports was 4.6 per cent in 1907. Freight Charges on Imports from Great Britain. — From the payments for freight charges on imports into Canada in foreign vessels must be deducted the portion of these payments expended in Canada. C. K. Hobson, from an examination of the accounts of two tramp steamers, estimates that 30 per cent of the gross receipts of British vessels are expended by the owners of the vessels in foreign ports.1 This estimate is based on the accounts o; British vessels either engaged in the trade between Great Britain and countries more distant than Canada or not trading from Great Britain. Hobson’s estimate is probably too high for the relatively short voyage between Great Britain and Canada, which permits of bunkering and laying in supplies in England for the round trip and involves stays of only a few days in Cana­ dian ports. Deduction should also be made, however, for the expenditures of the crews in Canada. On the other hand, some­ thing should be added for the payments to be made by importers on account of insurance, interest, and forwarding agents’ charges. It is customary for British exporters to Canada, in making out ' their invoices for purpose of entry through the Canadian customs, to deduct a per cent discount for cash payment. In some cases, the actual terms made with the Canadian buyers do not stipulate immediate payment and the discount for cash is not received by the importer. Something is therefore to be added for this item also. Giffen estimated that these miscellaneous items amounted 1 The Export of Capital, p. 173. Giffen, in 1882, estim ated th a t one sixth of the total receipts were expended abroad. (Journal of the Royal Statistical Society, June, 1882, p. 208.)

72

C A N A D A 'S B A L A N C E OF T R A D E

to 2§ per cent of the value of British exports and imports.1 Canada’s import trade, however, was financed by her own banks more largely than was the case in the Continental European and the smaller British colonies, or even in the United States before 1914, and this estimate seems excessive. The best final estimate which can be made is that the deductions for expenditures in Canada of ship owners and crew were largely offset by the addi­ tional charges for insurance, interest, etc., and that a reduction of the percentage of charges to imports from 3.6 to 3.5 will ade­ quately account for the remainder. Theoretically, also, deduction should be made for the imports from Great Britain carried by Canadian-owned vessels, in order to obtain a final figure for the payments to be made for freight charges on imports from Great Britain. But the Canadian official statistics of imports according to nationality of the vessel2 show that only a very small fraction of the imports from Great Britain are carried in Canadian vessels. In the fiscal year ending March 31, 1914, less than 18,000 tons out of a total of 906,000 tons were brought in Canadian vessels, and in other years even smaller percentages. The fact that some of the imports from Great Britain are carried by Canadian vessels is therefore disregarded. In reaching an estimate for other years based on the percent­ age estimated for 1907, three sets of facts must be considered; changes in freight rates, changes in prices, and changes in the character of the goods imported. There was no change of signifi­ cance in the character of the imports from Great Britain during this period. In 1900, 47 per cent, and in 1914, 45 per cent of the ' total imports from Great Britain consisted of textiles and textile products; in 1900, 19 per cent, and in 1914, 15 per cent, of the total imports consisted of metals and manufactures thereof.3 No adjustment need therefore be made for changes in the char­ acter of the imports. But the period was marked both by a rise in prices and a rise in freight rates. 1 Giffen, op. cil., p. 219.

of th e D epartm ent of Customs. 3 Fiscal years; com puted from C anada: Trade and Commerce Reports, 1900 and 1914. - Annual Shipping Reports

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

73

From quotations available for west-bound freight from British ports to Montreal for 13 representative commodities for the years 1907,-1910, and 1913, a roughly weighted index number was ob­ tained which, taking 1907 as 100, indicated an increase of 5.8 per cent from 1907 to 1910 and 33.2 per cent from 1907 to 1913.1 For the years before 1907 no Canadian quotations were obtain­ able. In the opening year of the 20th century, freights were un­ usually high because of the South African war, but they declined sharply after the conclusion of the war, with little recovery until 1906. By the use of British indices for outward freights (that is, 1 Q uotations given in reports of B ritish T rade Commissioners on T rade of Dom inion of C anada, B ritish Parliamentary Papers, Cd. 3868 (1908); Cd. 5591 (1911); Cd. 6870 (1913). T he quotations used in m aking the index were for: crockery, hardw are, iron bars, iron sheets, iron girders, bolts and n uts, tinplate, cutlery, heavy cottons, all other dry goods, m achinery (average of four quotations). W eighting done on the basis of relative importance of the commodities in the im ports. TA B LE X II I n d ic e s

for

F r e ig h t C h a r g e s

1900

to

on

I m ports

from

1913 (1907 = 100)

B ritish outw ard freig h t indices Y ear

C . K . H obson >

B oard of T rade*

19 0 0

D om inions Roya! C om m ission 1

C anadian inw ard freights present calculation

9 5 .ON

19 0 2

8 9 -5

1 1 7 .6

7 8 .9

7 7 .6

190 4

7 8 .0

71 -3

8 3 -7

9 5 -° 8 9 -5 7 7 -6 7 i-3

8 9 -5

1903

8 0 .6

8 0 .6

1 0 0 .0

1 0 0 .0

190 6

100.0

19 0 7

1 0 0 .0

ICO.O

190 8

8 5 .0

9 4 .0

190 9

8 3 .2

1 0 1 .5

19 10

9 9 .0

1 0 3 .0

19 11

1 1 6 .0

1 2 3 .9

19 12

1 5 6 .0

I S 9 -7

100.0

1 0 3 .8 1 0 5 .8

c.

K . Hobson,

1 2 4 .0

1 3 3 -2

The Export oj Capital, p. 1 8 2 .

Recom puted to

1 9 0 7 as base yea r b y pu ttin g the figure for 1 9 0 2 a t 8 9 .5 , as in the D om inions

R o y a l Comm ission Index. » Dom inions R o y a l Commission,

Papers, C d . 7 9 7 1 , 1 9 1 7 .)

1 0 5 .8

H 4 -9 1 3 3 -2

Ibid.

1 0 0 .0 1 0 1 .9

1913 > F ro m

Ind ex used in present stu d y

1 1 7 .6

19 OI

I9°S

*

G r e a t B r it a in ,

Final Report, Appendix

C , p.

1 0 9 . (G re a t B r ita in : 1 9 0 7 as 1 0 0 .

Figu res read from ch art and recomputed to

Parliamentary

74

C A N A D A 'S B A L A N C E OF T R A D E

outward from Great Britain) to all countries, a guide can be ob­ tained of the trend of Canadian inward freights to 1907. Table XII presents the freight indices which have been found. For the years 1900 to 1902 the British Board of Trade index is used. In the absence of more satisfactory data, the Dominions Royal Commission index 1is used for the years 1903 to 1907, and the present calculation for the years 1907,1910, and 1913 is used as the index for these years and also as the basis of an index for 1 T he report of the Dominions Royal Commission, in which this index was found, docs not explain its source or the method used in its construction. I t was probably obtained by th e Commission from the B ritish Board of Trade. T A B LE X III F

r e ig h t

P

aym en ts

C

by

anada

on

I m ports

1900

to

19 13

fro m

G

reat

B

r it a in

,

I n thousands of dollars

Y ear

I Im ports from G reat B ritain 1

II Percentage o f freight charges to im ports,

1907

III

IV

F reigh t rate index (T able X II)

Price index*

1 1 7 .6

9 4 -3

9 5 -0 8 9 S

9 1 .2

190 2

4 3 ,5 5 ° 4 5 .9 2 1 5 3 .9 0 8

1903

6 0 ,2 5 9

7 7 .6

9 1 .4

190 0 1901

9 0 .9

V VIp a y­ Percentage Freight of freight m ents on charges to im ports im ports from Great ( I lX I U - r lV ) B ritain (I X V ) 4 .4

3 -6 3 -4 3 -0

1 ,9 1 6 1 ,6 5 3 1 ,8 3 3 1 ,8 0 8

190 4

6 0 ,9 8 4

7 1 -3

9 2 .6

2 .7

1 ,6 4 7

1905

8 0 .6

100.0

9 2 .1

9 5 -i

19 0 7

9 2 ,2 8 5

1 0 0 .0

1 0 0 .0

190 8

7 6 .6 1 6

1 0 1 .9

9 7 .1

190 9

8 9 .1 7 3

1 0 3 .8

9 8 .2

19 10

1 0 6 ,2 8 5

1 0 5 .8

1 0 2 .6

19 11

1 1 5 .1 6 3

” 4 -9

1 0 3 .2

3 -i 3 -7 3 -5 3 -7 3 -7 3 -6 3 -9

2 ,0 0 6

190 6

6 4 ,7 1 3 7 7 ,5 3 6

19 1 2

1 1 3 ,2 8 4

1 2 4 .0

1 0 8 .4

4 .0

1913

1 1 3 ,6 4 2

1 3 3 -2

1 0 9 .9

4 .2

3 -5

T otal. .

2 ,8 6 9

3 ,2 3 0 2 ,8 3 5 3 ,2 9 9 3 ,8 2 6

4 ,4 9 1 5 .3 3 1 5 .6 1 3 4 2 ,3 5 7

< Canada Year Book, IQ 1 3 , p. from fiscal year statistics.

330.

Im ports entered for con sum ption. A djusted to calendar year

basis

1

G re a t B r ita in :

L a b o r D e p t. B o a rd of T ra d e , recomputed to

Livintt Report, v ol. ii, p. 1 4 0 -

1 9 0 7 as 1 0 0 . D a t a from Cost 0}

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

75

the intermediate years constructed on the assumption that there were uniform increases in each year from 1907 to 1910, and from 1910 to 1913, respectively. The ad valorem percentage of freight charges to total imports from Great Britain, for 1907, multiplied for each year by the freight index and also by the reciprocal of the price index, will give the ad valorem percentage of freight charges to imports from Great Britain for each year in the period. The amount of freight charges for each year can then be obtained by multiplying the amount of imports for each year by the percentage, for that year, of freight charges to imports. Table X III presents the final calculation of the payments made abroad for freight charges on imports from Great Britain. TA B LE X IV F

r e ig h t

P

aym en ts

by

C

anada

on

1900

I m po rts to

from

Th e U

n it e d

St a t e s ,

19 13

I n thousands of dollars

I Im ports from th e U nited S tates .1

Y ear

II Percentage of freight charges to im ports,

I II P rice in d ex 5

1907

IV . P ercentage of freig h t charges to im ports (II -i- III)

1900

1 0 4 ,6 1 5

85

6 .2

6 ,4 8 6

1901

1 1 0 ,9 4 7

84

6 .3

6 ,9 9 0

190 2

1 2 1 ,7 6 7

190 3

1 3 5 ,9 0 0

91 91

1 4 7 ,7 2 1

92

1 6 0 ,6 1 5

91 94

5 -8 5 -8 5 -8 5 -8 5 -6 5 -3 5 -5 S -i 5 -o 5 -2 S -o 5 -o

190 4 1905

.

190 6

1 8 3 ,4 6 5

19 0 7

2 0 3 ,0 1 9

19 0 8

1 7 8 ,7 0 4

97

19 0 9

2 0 5 ,6 4 1

10 3

19 10

5 -3

10 0

2 6 0 ,5 0 9

10 6

3 1 6 ,5 3 3

io r

19 12

4 0 9 ,4 3 4

10 7

1913

4 0 5 ,6 1 6

10 6

19 11

•

T o t a l..

'

V Freight charges o n im ports from th e U n ited States (I X IV )

8 ,5 6 8

9 ,3 1 6 1 0 ,2 7 4 1 0 ,7 6 0 9 ,8 2 9 1 0 ,4 8 8

1 3 ,0 2 5 1 6 ,4 6 0 2 0 ,4 7 2 2 0 ,2 8 0

1 5 7 ,8 9 2

Canada Year Book, 1 9 1 3 , p. 3 3 0 .

A djusted to calendar yea r basis from fiscal ye a r statistics.

« U . S . D e p t, of L a b o r, B u re au of L a b o r Sta tistics, R ecom puted from

7 ,0 6 2 7 ,8 8 2

1 9 1 4 as base to 1 9 0 7 as base.

Wholesale Prices Index,

B u ll. N o .

1 8 1 , p. 1 6 .

76

C A N A D A 'S B A L A N C E O F T R A D E

Freight Charges on Imports from the United Stales. — It was estimated above that the ad valorem percentage of freight charges to imports from the United States was 6.3 per cent in 1907. An addition of at least \ of one per cent should be made for cash discounts deducted from the invoice for purposes of customs entry, but not actually received by the importer. Deductions must be made for freight charges on imports from the United States carried by Canadian vessels, and for the portion of over­ land freight charges which covers the carriage of goods from the Canadian boundary to their destination. Based on scanty data, an allowance of ii per cent ad valorem is made for these two items, leaving 5.3 per cent as the net ad valorem percentage of freight charges to import values for 1907. Railroad freight rates remained practically constant during the period under study, whereas prices rose steadily. Assuming that no change occurred in railroad freights during the period, the payment to be made by Canada on account of freight charges on imports from the United States will be estimated as equal for each year TABLE F

r e ig h t

Paym

en ts

Great B

by

C

r it a in

anada

on

and th e

XV

I m ports U

n it e d

fro m

C

o u n t r ie s

S t a t e s , 19 0 0

I n thousands o f dollars

Y ear

Im p o rts'

2

o th er

th an

19 13

F reigh t paym ents b y C anada *

190 0

... 26,939

808

19 0 1

... 30.222

19 0 2

’.................................................................... ... 34,972

190 3

....38,043

190 4

...38,849

907 1,049 I ,I4 I I iI 6s

190 5

... 42,0 71

1,262

190 6 190 7

... 47.133 ... 5»,852

I .4 I4 1,5 5 6

190 8

... 48 ,8 13

1,464

190 9

... 54,602

1,638

19 1 0

... 64,468

i ,934

19 1 1 19 1 2

...72,327 ... 9 0 ,2 11

2,170 2,706

... 92 ,0 10

2,760

19 1 3 >

to

Canada Year Book,

i g i 3 , p.

3 3 0 . A djusted to calendar ye a r basis from fiscal y e a r statistics. B ased on the estim ate th a t freight charges a fte r deductions were 3 per cent of th e valu e of im ports.

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

77

to 5.3 per cent of the value of the imports for that year multiplied by the reciprocal of the price index for that year. Table XIV presents the calculation of freight charges paid by Canada on imports from the United States. Freight Charges on Imports from other Countries. — There re­ main to be considered the freight charges on imports from coun­ tries other than the United States and the United Kingdom. The estimate for 1907, of 4.6 per cent as the ad valorem percentage of freight and other charges to imports, will be used for all the years, on the assumption that increases in freight rates offset increases in prices. Canadian vessels carry an appreciable pro­ portion of these imports, especially of those coming from New­ foundland, the West Indies, the Far East, and Australia. De­ duction of 20 per cent of the charges for expenditures of vessels and crews in Canada and 20 per cent of the remainder for im­ ports brought by Canadian vessels results in approximately 3 per TABLE

XVI

F r e ig h t P a y m e n t s b y C a n a d a o n I m p o r t s f r o m a l l C o u n t r ie s , 1900 t o 19 13

I n thousands o j dollars Year

On imports [rom On imports from Great Britain United States

On imports from On imports from other countries all countries

19 0 0 ................................

1,9 1 6

6,486

808

9,210

1 9 0 1 ................................

I.6 53

6,990

907

19 0 2 ................................

1.833

7,062

1,049

9,550 9,944

1 9 0 3 ................................ 1 9 0 4 ................................ 1 9 0 5 ................................

1,808

7,882

1,14 1

10,831

1,647

8,568

1 ,16 5

11,3 8 0

2,006

9 ,3 l 6

1,262

12,584

19 0 6 ...............................

2,869

10 ,274

1,4 14

1 9 0 7 ............................... 1 9 0 8 ...............................

10 ,760

1,556

9,829

1,464

14 ,12 8

1 9 0 9 ................................

3.230 2.835 3.299

14,557 I 5 ,S 46

10,488

1,638

15,425

1 9 1 0 ...............................

3,826

13,025

1,934

1 9 H ................................

16,460

2 ,170

18,785 23 ,121

20,472

2,706

28,509

1 9 13 ................................

4.491 5,331 S ,6 l 3

20,280

2,760

28,653

T o t a l ..............................

42.357

157,892

21,974

222,223

1 9 1 2 ................................

78

C A N A D A 'S B A L A N C E OF T R A D E

cent as the ad valorem percentage of net freight payments to be made by Canada to imports from these countries. Table XV presents the calculation of these payments. Table XVI presents the estimates for total freight charges on imports from all coun­ tries. The results obtained in this way may be compared with the figures which would have been available if the method discussed earlier in this section had been adopted. Table XVII is con­ structed on the assumption that the carrying charges for the world equal the difference between world imports and exports. The percentage of these charges to the amount of world imports is taken as the ad valorem percentage of import freight charges to imports. The percentages obtained by this method are uni­ formly higher than those found to hold for the selected commodi­ ties imported into Canada in 1907, and than those estimated, for corresponding years, in the present calculation. TA B LE X V II R a t io o f F r e ig h t C h a r g e s t o V a l u e o f W o r l d I m p o r t s

W orld im ports

W orld exports

E xcess of im ports over exports

Y ear

R atio of freight R atio of freight charges to charges to w orld im ports: C anadian im ­ H obson’s ports. Present calculation.* m ethod

In thousands of pounds sterlin g

P er ccnt

1901 1

2 ,5 1 6

2 ,2 9 2

224

8 .9

s

2 ,6 2 8

2 ,4 4 6

182

6 .9

3 -2 5 3 3 ,7 3 7 - 2 3 ,6 1 1

3 ,0 5 2 3 ,3 8 3 - 6 3 ,3 7 7

4 ,4 0 3

4 ,0 6 1

4 ,3 9 °

4 ,0 5 0

1904

1906 1 19 0 7

s

1909 1 1

/

201

6 .2

3 5 3 -6 234 342 340

9 -5 6 -5 7 -8 7 -7

5-1 4 -6 4 -7 4 -5 4 .4

IJ

s

44 -5

1 E d g a r C ra m m o n d , The British Shipping Industry, 1917, p . 2 7 1 Report of Committee to Chamber o f Shipping o f the United Kingdom and Liverpool Steam S hip Owners' Association, J u l y , 1 9 1 7 , v o l. ii, p p . 7 6 . 7 7 » C . K . H o b s o n , The Export o f Capital, p . 1 7 4 ; a s q u o te d fro m Manchester Guardian, F e b r u a r y 10, 1 9 1 1 . C o m p a ris o n w ith th e re s u lts o b ta in e d b y th e s a m e m e th o d b y o th e r w r ite r s f o r n e a r b y y e a rs s u g g e s ts t h a t th is is a n o v e re s tim a te . * R a tio o f to ta l f re ig h t c h a rg e s , a f te r a llo w a n c e s, to t o ta l im p o r ts f ro m a ll c o u n trie s .

B A L A N C E OF IN T E R N A TIO N A L IN D E B TE D N E SS

79

Freight Charges on Exports. — The freight charges on exports sold f. o. b. are paid by the purchaser of the goods. The Canadian exports are shipped to their destination mainly by foreign carriers, but Canada receives payments for the purchases in Canada of vessels and crew. On the exports to the United States, Canada receives payment for the charges for transportation from the point of origin in Canada to the point where the exports cross the boundary, but in most cases the distances to the boundary are short. It is estimated that 2 per cent of the value of the ex­ ports will cover the payments to be made to Canada: for rail­ road transportation to the boundary on exports to the United States, and to the ocean ports on exports by sea sold f. o. b. producing point and not f. o. b. the port of export; for water transportation on exports carried in Canadian vessels; and for expenditures in Canada of foreign vessels and crews. Table XVIII presents the estimate of payments to Canada on account of ex­ port freight charges. TABLE X V III F

r e ig h t

P

aym en ts

to

C

anada

on

E

xports,

19 0 0

to

19 13

In thousands of dollars Y ear

1

E x p o rts 1

F reight paym ents to C an a d a*

19 0 0 .................................... ............................. 19 0 1 ..................................... .............................

181,493

3,630

200,548

4,0 11

1 9 0 2 ..................................... .............................

216,629

1 9 0 3 .............................................. ............................. 1 9 0 4 .............................................. ............................. 1 9 0 5 ..............................................

227,470

4,333 4,549 3,931 4,457

196,566

19 0 6 ..................................... .............................

2 5 3,110

5,062

1 9 0 7 ..............................................................................

254,037

5 ,o 8 i

19 0 8 .................................... .............................

265,146

1909

288,685

5,303 5,774 5 ,9 o 8

........... .............................

1 9 1 0 ..................................... .............................

295,415

1 9 1 1 ..................................... .............................

296,568

1 9 1 2 ....................................................................

362,966

5,931 7,259

1 9 1 3 ..............................................................................

460,519

9,210

T o t a l ........................................ .............................

3,722,016

T o ta l M erchandise E xports, calendar y ea r statistics, from D ep t, of C ustom s,

74,439 Unrccised Monthly

Statements of Imports and Exports.

J B ased o n th e estim a te th at freight pa ym en ts, e tc ., to Canada w ere i per cent of th e value of the exports.

8o

C A N A D A ’S B A L A N C E OF T R A D E

I nsu ra n ce P aym ents

sen t

A broad

from

Canada

To ascertain the amount of fire- and life-insurance payments sent abroad from Canada, use is made of the official statistics for the excess of premium income over expenditures in Canada of foreign companies. For an estimate of the payments m^de to foreign companies for insurance other than life and fire, including casualty, sickness, employers’ liability, and sundry other kinds T A B LE X IX I n s u r a n c e P a y m e n t s b y C a n a d a t o F o r e ig n C o m p a n ie s ,

1900

to

19 13

In thousands o j dollars

Year

I Foreign lifeinsurance co m p a n ie s 1

II Foreign fireinsurance c o m p an ies 1

E xcess o f prem ium incom e over expenditure in Canada

O ther foreign insurance com p anies III Prem ium receipts in C anada *

V

IV T o ta l insurance E xcess of p a ym en ts by premium C anada incom e over (I + II + IV ) expenditure in C an a d a 1

190 0

985

1 ,7 1 2 *

1 ,0 0 2

200

527

1901

665

67 *

555

112

710

190 2

1 .2 8 5

2 ,8 6 2

691

190 3

1 ,8 5 1

864

138 173

4 ,2 8 5 3 ,0 7 9

190 4

i .° S 5 556

1905

859

190 6

1 ,1 3 0

3 ,6 n 3 ,2 9 9

19 0 7

634

190 8

827

830

166

3 ,1 5 2

1 ,0 8 7

2 17

4 ,6 8 7

i ,2 7 5 1 ,4 5 8

255

4 ,6 8 4

2 ,2 8 4

292

3 ,2 1 0

1 ,8 7 2

1 .7 6 4

353

3 .0 5 2

3 ,8 7 4 *

1909

929

2 ,8 6 9

2 ,c o o

400

4 .1 9 8

19 10

8 71

2 ,4 8 3

2 ,5 0 0

500

3 .8 5 4

H

1 .2 7 9

3 .0 1 2

3 ,4 8 1

636

4 ,9 2 7

19 12

1 .8 5 1

3 ,6 6 6

3 ,8 0 2

840

6 ,3 5 7

1913

2 ,1 6 9

3 .6 3 6

3 ,1 6 2

595

6 ,4 0 0

1 5 .0 9 5

2 5 .7 9 2

2 4 ,4 7 1

4 ,8 7 7

4 5 ,7 6 4

19

T o ta l..

1 Com puted from d a ta in C an ada: Superintendent of Insurance,

Annual Reports;

K 4

to ta l income in

C a n a d a exclusive of interest, minus total expenditures in Canada. s 1 9 0 0-1 9 0 4, prem ium receipts in Can ada of a ll foreign insurance companies

Canada Year Books,

m inus prem ium receipts in Can ada o f foreign fire-and life-insurance companies. from an nu al reports to Superintendent of In su ran ce o f in d ivid u al companies. based on incom plete d ata. 1 1911-19 13,

1 9 0 5 - 1 9 0 8 , com piled 1 9 0 9 - 1 9 1 0 , estimates,

1 9 1 1 - 1 9 1 3 , Canada Year Books. 1 9 0 0 - 1 9 1 0 , 2 0 per cen t o f prem ium receipts in C a n a d a , which

Canada Year Books.

w as th e average percentage to prem ium income of excess o f prem ium incom e over expenditure for a ll Can adian companies engaged in miscellaneous insurance during the sam e period.

4 Excess of expenditures over prem ium income, due to conflagrations in these years.

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

81

of insurance, less satisfactory data are available. The amount of premium income received in Canada by foreign companies dealing in insurance other than life and fire was obtained or estimated on the basis of complete or partial data, derived from various official sources, and the excess of income over expenditures was then estimated on the basis of the proportion which premium 4 income bore to excess of income over expenditure during several selected years within the period under study for all the Canadian companies dealing in sundry insurance. The interest income of foreign insurance companies from investments in Canada will be accounted for when interest payments are estimated. Table XIX presents the estimated amounts of the insurance payments sent abroad from Canada during the years 1900 to 1913-

In su ra n ce P aym ents

by other

C o u n t r ie s

to

C anada

Canadian life-insurance companies, and to a smaller extent Canadian fire-insurance companies, operate in countries other than Canada. The official reports indicate that only one Cana­ dian company dealing in insurance other than fire and life operates outside of Canada, and its foreign business is not important enough to justify consideration here. There are available official data covering the amount of lifeinsurance risks of Canadian companies in other countries for the years 1902 to 1913. For the period 1909 to 1913, the annual excess of income over expenditure for Canadian companies on both domestic and foreign business averaged 2.8 per cent of the amount of policies in force. A little over 22 per cent of the total income consisted of interest on investments, presumably almost wholly in Canada. After allowance for interest on investments and for the greater relative cost of doing business abroad than at home, 2 per cent is taken as the percentage, for the years 1902 to 1913, of excess of premium income over expenditure to the total amount of insurance in force outside of Canada. The data available relating to the operations outside of Canada of Canadian fire-insurance companies give the premium receipts and the losses on business outside of Canada for the en­

82

C A N A D A ’S B A L A N C E OF T R A D E

tire period covered. The official data given in the Annual Reports of the Superintendent of Insurance indicate that on the total business done by Canadian fire-insurance companies in Canada and elsewhere during the years from 1900 to 1913, the excess of income over expenditure amounted to a little over 12 per cent of the excess of premiums over losses. The income from invest­ ments is a relatively small fraction of the total income of fireinsurance companies. Making a small allowance for income from investments and for the greater cost of operating abroad than at home, 10 per cent is taken as the percentage of excess of income over expenditure to the excess of premiums over losses for the business of Canadian fire-insurance companies outside of Canada. TABLE XX I n s u r a n c e P a y m e n ts t o C a n a d a b y o t h e r C o u n t r ie s ,

1900

to

19 13

In thousands of dollars

L ife insurance Y ear

C anadian policies in force in other cou ntries 1

Fire insurance

N e t incom e *

585

1900 1 9 OI

4

E xcess of prem ium s over losses in foreign business *

N et incom e *

T o ta l p a ym en ts to C anada

836

84

669

1 ,0 2 8

1 ,1 7 9 i ,3 4 S

1 ,1 6 2

1 ,4 6 3

19 0 2

5 1 .3 8 9

19 0 3

6 4 ,2 1 9

1 ,2 8 4

1 ,7 8 7

I l8 134 179

190 4

7 6 ,3 5 8

1 ,1 9 6

120

1 ,6 4 7

I9°5

8 9 ,6 6 7

9 9 ,7 H

19 0 7

1 1 0 ,7 5 6

2 ,2 1 5

981

190 8

1 2 0 ,9 5 2

2 ,4 1 9

1909

1 3 1 ,2 9 5

2 ,6 2 6

16 3

2 ,7 8 9

19 10

1 4 1 ,8 3 2

19 11 19 12

1 5 7 ,H 5 1 7 5 ,1 4 1

1913

1 9 4 ,7 2 1

2 ,8 3 7 3 ,1 4 2 3 ,5 0 3 3 ,8 9 4

779 1 ,6 3 4 1 ,4 2 7

l 6o 29 98 78

i ,9 5 3

1906

1 ,5 2 7 1 ,7 9 3 1 ,9 9 4

T o t a l..

806

2 9 ,6 5 3

«

1 ,6 0 4 28 9

924

2 ,0 2 3 2 ,3 1 3

2 ,4 9 7

143

2 ,9 8 0

1 ,1 9 4

119

3 ,2 6 1

1 ,4 2 8

143 •

3 ,6 4 6

1 ,0 2 7

10 3

3 ,9 9 7

1 ,6 7 1

3 1 ,3 2 4

> Cost of Living Report, v o l. ii, p. o06 . « T h e m ethod used in ob tain in g th e figures given in these colum ns is explained in th e text. * Annual Reports o f th e Superintendent of Insurance. • E stim ated from incom plete data.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

83

Table XX presents the estimated amounts of the insurance payments to Canada by other countries. Coats,1 basing his estimate on a different method of calcula­ tion whose details are not given, and using only data for the years 1902 to 1913, estimates at $20,000,000 the excess of in­ come over expenditure on the business of Canadian life-insurance companies outside of Canada, as compared with the present estimate of $29,600,000. He presents no estimate for fire-in­ surance companies. E x p e n d it u r e s

by

T o u r is t s

in

C anada

The only method available for reaching an estimate of the expenditures by tourists in Canada is to make an estimate of the average expenditures by each tourist in Canada and to multiply that estimate by the number of tourists recorded as having entered Canada. No statistics are collected for tourists entering Canada from the United States.2 Their expenditures, which are unquestionably of considerable importance,3 can only be guessed at. It has been estimated by Canadian newspapers that in the summer of 1920, $50,000,000 was spent by American tourists in Canada. Allowance being made for the rise in prices and for the increase in tourist traffic, this figure has been used as a rough guide in making the estimate. For ocean tourists holding cabin tickets on the steamers, it is estimated that the average expenditure is 1 2

C ost o f L iv in g R e p o rt, vol. ii, p. 906.

“ D uring the year ended June 30,1909, more th an 9,000,000 people entered the U nited States over the northern border. No doubt the num ber crossing from the U nited S tates to C anada was equally great.” U. S. Commissioner of Im m igration’s R e p o rt for 1911, p. 158. If only 5 per cent of these were tourists to C anada and if each tourist spent in C anada on the average only $30, th e total expenditure would exceed the estim ate made in Table X X I. T he American consul a t H alifax, after a careful study of the available d ata, estim ated th a t 60,000 American tourists in N ova Scotia spend, during the four sum m er m onths, on the average a t least $42.50 each. (U. S. D ept, of Commerce, M o n th ly C o n su la r a n d T ra d e R e p o rts [Dec. 1909], N o. 351, pp. 245 seq.) 3 “ M any of the w ealthier classes of the Southern S tales spend their entire summ ers across the border, and from N ova Scotia to Vancouver th e Canadian borderlands and islands along the waterways are dotted with the summ er homes of Americans.” H. S. Van Sant, U. S. consul a t Kingston, O ntario, in U. S. D ept, of Commerce, M o n th ly C o n su la r a n d T ra d e R e p o rts (June, 1909), No. 345, p. 207.

84

C A N A D A ’S B A L A N C E OF T R A D E

$1,000. This is the estimate made by Paish in 1910 for the average expenditure of all tourists in the United States, and fol­ lowed by the study of the American balance of trade made for the Harvard University Committee on Economic Research, and by Coats in his study of the Canadian balance of trade.1 One thousand dollars seems an unreasonably high estimate for expenditures in Canada by those tourists whose standard of ex­ penditure is low enough to induce them to travel to Canada in the steerage, especially when it is considered that any one who states that he comes to Canada on a visit and not for permanent residence is classed as a tourist by the immigration authorities, and that children as well as adults are included in the statistics. Three hundred dollars is taken as a sufficiently generous estimate of the average expenditures in Canada of tourists who arrived steerage. Statistics of tourist arrivals at ocean ports and the estimated expenditure of all tourists in Canada are given in Table XXI. Coats2 estimates that tourists other than American spent in Canada $125,000,000 during a period approximately the same as that studied here, and that American tourists spent about $15,000,000 more in Canada during the period than was spent by Canadian tourists in the United States. His estimate for the expenditures of tourists in Canada other than Americans exceeds the one reached in this study by about $55,000,000. But Coats estimates the number of saloon tourists arriving in Canada at a higher number than the official statistics used .here,3 and esti­ 1 Sir George Paish, T h e T ra d e B a la n c e o f the U n ite d S ta le s, N ational M onetary Commission, 1910 (61st Cong., 2d Sess., S e n . D oc. 579), pp. 180-182; Bullock, W illiams, and Tucker, “ T he Balance of T rade of the United S tates,” H arvard R eview o f E co n o m ic S ta tistic s, Prelim inary Volume N o. 3, p. 230; C ost o f L iv in g R ep o rt, vol. ii, p. 905. - Ib id ., pp. 896, 897, 904, 905. 3 T he official statistics of saloon tourists are not included in any of the general tables compiled by the Im m igration B ranch, and are buried in an inconspicuous part of the text of the annual reports of the Commissioner of Im m igration. M r. C oats seems to have been unaware of their existence. H e divides th e total number of saloon arrivals into returned Canadians and tourists, overlooking the fact th at some im m igrants travel on first-class tickets. H e thus reaches an overestim ate of the num ber of saloon tourists, and an underestim ate of the num ber of imm igrants.

85

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

mates at Si,000 the expenditures of both saloon and steerage tourists, whereas S300 is the figure used here for expenditures by steerage tourists. E x p e n d it u r e s

by

C a n a d ia n T

o u r is t s

The expenditures of Canadian overseas tourists are estimated on the basis of $1,000 spent abroad, including transportation charges, by each Canadian who travels on a first-class ocean ticket, and S300 spent abroad by each Canadian who travels steerage. The figures of Canadian tourists are obtained from TA B LE X X I T o u r is t E x p e n d itu re s in C anada, 1900 t o 1913 I n th o u sa n d s o f dollars Saloon tourist arrivals a t ocean ports

Steerage tourist arrivals a t ocean ports

Y ear N u m b er1

Expenditures ($1000 each)

Num ber *

Expenditures (S300 cach)

76 94

253 312

Expenditures T o ta l of American expenditures tourists

1 ,9 7 8

1 ,9 7 8

2 ,8 9 6

2,896

19 0 2

3.439

3,439

36 2

109

7 ,5 0 0

11 ,0 4 8

2,90 2

2,90 2

414

124

7 ,5 0 0

10 ,5 2 6

2,40 5

1 ,2 6 2

379

10 ,0 0 0

1 2 ,7 8 4

2 ,5 6 2

76 8

10,0 00

13,344

12 ,5 0 0

1 6 ,7 9 6

1903 19 0 6

2,405 2,576 3,345

2,576 3,345

19 0 7

2 ,2 2 3

2 ,2 2 3

19 0 8

2 ,69 5

2 ,69 5

19 0 4

9

I °S

19 0 9 19 10 19 11 19 12

1913

3,170 4,902 5,023 5.338

2,952 5,194 6,543 .6,398

2,952 5,194 6,543 6,398

1 0 ,0 1 6

7 ,0 8 8

7,0 88

1 1 ,2 2 9

T o ta l..

7,244

1 C a n a d a : D e p t, of the In te rio r, Im m igatio n B ra n ch .

5,0 0 0

•

12 ,5 0 0

1 6 ,1 9 4

15 ,0 0 0

19 ,2 0 2

1,6 0 1

15 ,0 0 0

2,0 50

17 .5 0 0

19,553 24,744

1 7 ,5 0 0

2 6 ,2 1 6

2,173 3 ,o o s 3,369 1 7 ,6 7 7

Annual Reports.

20,000 20,000 17 5 ,0 0 0

29,403 30,457 245 , 3 H

A d ju sted to calendar yea r

F ro m 1900 to 1904 the d ata are com pilations from th e reports of

T h e figures for 1909 and 1910 are estimates based o n incom plete d ata .

U n ited S ta te s ocean p orts are included. ! C an ada: D e partm e nt of Im m igratio n a n d Colonization, A d ju sted to calendar y e a r basis from fiscal y e a r statistics. included.

951 47 i

1 ,5 0 7

6 ,8 3 3

5 2 ,6 3 4

basis from fiscal yea r statistics. separate ports.

i,

5,0 0 0

7,054 7,990

19 00 1 901

A rriv a ls via

Immigration Factsand Figures,

1920.

A rriv a ls v ia U n ited States ocean p orts are

86

C A N A D A ’S B A L A N C E OF T R A D E

the official statistics for returned Canadians arriving at ocean ports, including United States ports. The “ returned Canadians ” who travel steerage consist in large part of alien residents of Canada who return from a visit to their native country. For expenditures of Canadian tourists in the United States, there is no information upon which to base an estimate. The number of American tourists who visit Canada is probably much greater than the number of Canadian tourists who visit the United States.1 But Canadians do a considerable amount of shopping in the United States and only a small fraction of their purchases is declared to the customs inspectors, whereas the expenditure of tourists in Canada is almost wholly for transportation, hotel, and other services. On the other hand, the average standard of 1 Cf. Cost of Living Report, vol. ii, p. 905. T A B LE X X II E

x p e n d it u r e s

A

broad

by

C

a n a d ia n

T

o u r is t s ,

1900

to

1913

In thousands of dollars

Y ear

1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 T otal. .

Saloon Expenditures returned ($1000 each) C anadians1

3,154 3,523 3,290 3,o ii 2,754 3,964 5,623 4,672 4,469 4,405 6,426 8,544 9,443 11,264

3,154 3,523 3,290 3,011 2,754 3,964 5,623 4,672 4,469 4,405 6,426 8,544 9,443 11,264 74,542

Steerage Expenditures Expenditures T o ta l returned in United ($300 each) expenditures Canadians s States

,937 i ,273 1,623 2,177 3,919 8,133 11,652 i 6,337 20,538 25,589 32,874 37,746 45,207 53,153

281 382 487 653 1,176 2,440 3,496 4,901 6,161 7,677 9,862 ” ,324 13,562 15,946

2,500 2,500 3,750 3,750 5,000 5,000 6,250 6,250 . 7,5oo 7,500 8,750 8,750 10,000 10,000

5.93S 6,405 7>527 7,414 8,930 11,404 15,369 15,823 18,130 19,582 2S.038 28,618 33,005 37,2io

78,348

87,500

240,390

' See note 1 to T able X X I , which applies also to the data in this column. 1 Canada: D ept, of Immigration and Colonization, Immigration Facts and Figure!, 1920. Adjusted to calendar year basis from fiscal year statistics.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

87

expenditure is probably much higher for the American tourists -who visit Canada than for the Canadian tourists who visit the United States. The best guess possible in the absence of any statistical data is that Canadian tourists spend one half as much in the United States as is spent by American tourists in Canada. Table XXII presents the statistics of expenditures by Cana­ dian tourists abroad, as estimated. Sun dry I tem s

There are a number of minor items of purchases and sales abroad of services by Canadians, for most of which statistical data are not available. Over 300 consuls and vice-consuls are maintained in Canada by foreign countries, and a number of trade commissioners by Great Britain, and their expenditures in Canada — to the extent to which they are met by remittances from their home countries and not by fees collected in Canada — should be considered as a credit item in the balance of inter­ national indebtedness. The expenditures of customs and immi­ gration. officials maintained by the United States in Canada should be similarly accounted for. There are always a consider­ able number of American and British commercial travelers and other agents in Canada, and their expenditures in Canada should also be considered as an export of services. The only items of any importance on the other side of the bal­ ance are the expenditures in foreign countries of the Immigration Branch of the Department of the Interior in propaganda, office expenses, etc., and the mail and other subsidies paid to foreign steamship lines by the Canadian government. For these two items official statistics are collected. Canadian grants to missions abroad should also be mentioned, but no data as to their amount are available. The expenditures of the immigration service in foreign coun­ tries during the period under study amounted approximately to a total of $7,750,000.' The mail and other subsidies granted during the same period amounted approximately to a total of $i9,45o,ooo.2 Of this total, approximately 15 per cent went to 1 Immigration Facts and Figures, 1920, p. 22. 2 C anada: Public Accounts, 1920, p. 75.

88

C A N A D A 'S B A L A N C E OF T R A D E

steamship lines engaged in internal trade,1leaving 85 per cent, or approximately $16,500,000, as the payments on vessels sailing, between Canada and other countries. Of this amount a minor fraction was paid to Canadian companies. The total amount of the payments made to foreign countries on account of the two items here considered may be taken to be roughly $20,000,000. There are no statistical data for the expenditures in Canada of officials of other countries or of commercial travelers and other agents of foreign business companies, but the amount of such expenditures is unquestionably at least as great as the payments by Canada discussed above. In the absence of data, it will be assumed that these two groups of items offset each other, and 110 further account will be taken of them in the final tabulation of the balance of international indebtedness. The consideration of interest payments to and by Canada is postponed to the next chapter, where they will be dealt with in connection with capital investments. It is not yet possible, therefore, to strike a balance of the imports and exports of services. 1 Com puted from detailed d ata given in C anada: D ept, of T rade and Commerce, 1913, P art IV , pp. 28, 29.

Annual Report,

CHAPTER V CAPITAL INVESTM ENTS, IN TEREST PAYMENTS, AND TH E CANADIAN BALANCE OF INTERNATIONAL INDEBTEDNESS C a n a d ia n I n v e s t m e n t s A b r o a d a n d I n t e r e s t R e c e i p t s T herefrom

O w i n g to the almost complete absence of statistical data con­ cerning the interest receipts from Canadian investments abroad, it is necessary to reach an estimate of the amount of such invest­ ments as a basis for estimating the interest payments to Canada from abroad. There were during the period under study practically no public issues of foreign securities in Canada. Canadian financiers, it is true, have in recent years specialized in the promotion of light and power and tramway enterprises, and a number of public utilities in the United States, Cuba, Mexico, Porto Rico, Brazil, and Spain are controlled by Canadian interests. But the bulk of the capital actually invested in these enterprises is British. The Canadian control rests on ownership of common stock, con­ sisting in large part of promoters’ shares, and in most cases rep­ resenting only a small fraction of the actual capital invested in the undertaking. The financing of these enterprises was done mainly through bond issues floated in London. Bonds issued by corporations operating under Canadian charters in foreign coun­ tries amounted from 1909 to 1913 inclusive to $120,500,000, of which only $7,200,000 were taken up in Canada.1 Private investments by Canadians in foreign securities, espe­ cially high-grade American investment securities, were, however, substantial in amount. The Monetary Times, of Toronto, in a recent issue commented on these holdings as follows:

Notwithstanding the liquidation that has taken place in three and a half years of war, it is said that there is still a considerable amount of high-grade 1 E . R . W ood, A nn ua l Reviews of the Bond Market in Dom inion Securities Corporation, L td., Toronto.)

Canada.

(Published by

C A N A D A ’S B A L A N C E OF T R A D E 90 United States investment stocks held in the Dominion. Before the war the business in Wall Street stocks transacted by Montreal and Toronto brokers probably exceeded the business done in Canadian stocks. M any Canadian capitalists and financiers were accustomed to carry considerable lines in the United States stocks; also the wealthy American residents in Canada and the highly paid executive officials of large United States branch indus­ trials located in this country, naturally leaned towards United States securities in making their investments.1

Canadian railways owned or controlled 7,197 miles of road in the United States in 1912.2 These were largely roads acquired before 1900, but some investment in expansion of lines, equip­ ment, and terminal facilities was made during the period under study. The Canadian insurance companies operating abroad also had investments abroad in conformity with the insurance laws of the countries in which they operated, but no statistics relating to them are published. It is conservatively estimated, on the basis of the scanty information available, that the miscel­ laneous foreign investments of Canadian capital made in the period under study amounted to $50,000,000, distributed fairly evenly through the period. In addition to the miscellaneous investments, there are impor­ tant investments abroad by the Canadian banks. The Canadian banks hold substantial amounts of foreign securities, largely rail­ way securities. Eckardt has estimated that, of the total holdings of railway securities by the Canadian banks on February 28,1901, amounting to $27,496,000, at least $18,000,000 were foreign securities.3 It will be estimated here that two thirds of the hold­ ings of railway securities by the Canadian banks consisted, throughout the period, of foreign securities. But more important than the holdings of foreign securities by the banks were their

1 M o n e ta ry T im e s (Toronto), M ay 3, 1918. Canadian holdings of U nited States Steel stocks in 1914 am ounted to $7,892,000. {Ib id ., January 3,1919.) A M ontreal capitalist, Jam es Ross, at his death in 1913 left American securities am ounting to over $3,000,000. {Ib id ., December 27, 1913.) In the lists of the M ontreal and T oronto Stock Exchanges for 1912 and 1913 were included the securities of 14 non-Canadian enterprises, in 8 of which th e annual transactions were substantial in am ount. 2 C a n a d ia n A n n u a l R ev iew , 1912, p. 633. 3 H . M- P- E ckardt, J o u r n a l o f th e C a n a d ia n B a n k e rs' A s so c ia tio n , vol. x, No. 2 (January, 1903), p. 4.

91

B A L A N C E OF IN T E R N A TIO N A L IN D EB TE D N E SS

direct banking investments in foreign countries. The Canadian banks have a large number of branches abroad, and they also keep a considerable amount of funds in call loans abroad or on deposit with foreign banks. Tables XX III and XXIV present the estimates of investments abroad by Canadian banks. The bulk of the Canadian banking investments abroad con­ sisted of call loans in New York, and on these the interest rate averaged 3.6 per cent throughout the period under study.1 The net income would, of course, be substantially less, as banking expenses would have to be deducted therefrom. The interest on other Canadian investments abroad should average higher, probably somewhere between 4 and 5 per cent. It will be esti­ mated that the average return on all Canadian investments abroad was 4 per cent. On December 31, 1899, the investments 1 Cost of Living Report, v o l.

ii, p . 904.

TABLE X X III I n vestm ents

of

C

a n a d ia n

B

anks

in

F

o r e ig n

S e c u r i t i e s , 19 0 0

to

19 13

I n thousands of dollars

Y ea r a s of December 31

18 99

...................................................

Holdings o f rail­ w ay securities by Canadian banks T o ta l ‘ 1 4 ,6 6 3

Holdings o f rail­ w ay securities by Canadian banks estimated foreign*

9,775

1 9 1 0 .................................................................

25,507 31,994 36,925 38,351 38,744 39,649 41,455 41,971 44,213 50,051 59,519

1 9 1 1 .................................................................

6 4 ,8 8 9

4 3 ,2 5 9

1 9 1 2 .................................................................

6 8 ,8 4 0

1913 .................................................................

4 5 ,8 9 3

7 1 ,1 0 8

4 7 ,4 0 5

1 9 0 0 ................................................................. 1 9 0 1 ................................................................. 1 9 0 2 .................................................................

1903 .............................................................. 1904 ................................................................. 1905 ................................................................. 1 9 0 6 .................................................................

1907 ................................................................ 1 9 0 8 .................................................................

1909 ................ ................................................

T o t a l ..............................................................

> Canada Gaulle, M onthly Bank Supplements.

Increase in hold­ ings of foreign securities over preceding year

7,230 4,324

1 7 ,0 0 5 2 1 ,3 2 9 2 4 ,6 1 7

3 ,2 8 8

95

2 5 ,5 6 7 2 5 ,8 2 9

_

° 262

2 6 ,4 3 3

604

2 7 ,6 3 7 2 7 ,9 8 1

1,2 0 4

2 9 ,4 7 5

344 1,494

3 3 ,3 6 7

3 ,8 9 2

3 9 ,6 7 9

6 ,3 1 2

3 , 58 o 2 ,6 3 4 1 ,5 1 2

37,630 * T w o thirds of preceding column.

92

C A N A D A 'S B A L A N C E O F T R A D E

abroad of Canadian banks, including both security and banking investments, amounted to §69,309,000. It is estimated, on the basis of what data have been found, that Canadian capital abroad in 1899 amounted to $100,000,000. Table XXV presents the final estimates of Canadian capital investments abroad, and interest receipts therefrom. P r e l i m in a r y B a l a n c e

of

I n t e r n a t io n a l I n d e b t e d n e s s

Estimates have now been made for all the important classes of international transactions, with the exception of interest payments by Canada on its capital borrowings from abroad. The Canadian balance of international indebtedness in each year represents Canada’s net borrowing or lending of capital, or the difference T A B LE X X IV B a n k in g I n v e s t m e n t s

by

C a n a d ia n B a n k s O u t s id e o f C a n a d a , I9 O O T O 1 9 1 3 1

I n th o u sa n d s o f d o lla rs A ssets in foreign countries

Y ear a s of D ec. 31

D ue from banks in U nited Kingdom

Foreign countries

9,023 9,258

11,456 13,694 12,703

25,303 3 27,234 45,263 43,704 34,991

9 ,0 4 1

20,849

4 8 ,7 8 2

18 99

1 2 ,0 7 8

2 2 ,2 9 1

19 0 0

5,249

1 1 ,6 7 7

1901

6 ,8 8 3

19 0 2 19 0 3 19 0 4

90

8 ,30 8

I S 19 0 6

7,844

19 0 7

6 ,0 7 4

19 0 8

14 ,6 6 2

19 0 9

C all loans outside of Canada

7,295 3,823

14,344 15,512

4 0 ,0 7 2

9 0 ,7 1 0

4 0 ,4 0 0

2 5 ,6 6 7

9 2 ,1 0 6

19 1 2

1 0 ,1 1 9

23,435

1 0 5 ,9 5 2

2 5 ,6 0 1

1 1 5 ,9 8 4

9,312

37,970 40,990 58,305

1 0 1 ,0 9 2 1 0 6 ,8 7 6 8 1 ,4 2 9

12 2 ,0 3 5

1 0 ,9 1 2

1 2 9 ,7 0 1

9,079 1,374

1 8 8 ,4 5 2

2 2 ,9 2 8

30,351

7 6 ,3 6 5

6,598 7,491

17,344

2 4 ,4 8 6

2 0 ,74 0

6 ,3 2 4 5 ,8 6 1

1 8 ,6 1 6

2 4 ,1 1 4

I9 II

67,714

3 2 ,1 6 0

30 ,88 2

'

2,797 3,475 5 , 33°

34,131

36,475

1 6 ,3 0 8

T o ta l assets

2 0 ,0 79

58,958 43,509 97,136 138,505

34,929

Specie held outside of Canada 5

- 1 3 ,8 9 6 *

6 l,O lO

1910

>913

Current loans outside of Canada

1

10 2 ,6 1 4

9 7 ,8 9 8

” ,76 5 1 1 ,9 9 8

2 2 2 ,7 5 1

1 3 ,7 0 3

1 9 0 ,1 8 6

1 8 1 ,4 1 7

1 4 ,7 9 8

195,294

1 9 ,4 7 8

2 2 8 ,6 8 0

1 D a ta c o m p ile d f ro m Canada Gazelle, M o n th ly H a n k S u p p le m e n ts . *

Se p a rately reported o n ly since J u ly , 1013.

Estim a ted to be 17 per cent of deposits outside of

C a n a d a , w hich was the average for J u ly , 1913, to Ja n u a r y , 1914.

93

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

between its borrowings and loans. If the basic items so far con­ sidered be tabulated and the balances between the debit and the credit items struck for each year, and if there be added to these balances the amounts of Canadian capital invested abroad, or deducted from them the amounts of Canadian capital withdrawn from abroad in each year, the resulting figures should represent for each year the amounts of foreign capital invested in Canada in that year, minus the interest payments by Canada in that year on the total foreign capital invested in Canada.1 This calculation is made in Table XXVI. 1 M inus the interest paym ents by C anada, because the interest charges have not yet been added to the debits as im ports of services, and the debit balances are too low by th e am ounts of such charges. T A B LE X X IV B a n k in g I n v e s t m e n t s b y C a n a d ia n B a n k s O u t s id e o f C a n a d a ,

1900

In

to

19131

th o u sa n d s o f dollars

Year as of Dec. 31

Liabilities in foreign countries Due to banks in Deposits Total of liabilities United Foreign outside Canada Kingdom countries

1899 1900 1901 1902 1903 1904 190S 1906 1907 1908 1909 1910 1911 1912 1913

4,360 4,190 3.754 5,6i i 2,884 2.452 4,098 8,207 10,330 2,186 2,011 1.573 4.350 8,312 12,810

908 526 1,052 1,157 1,830 1,224 1,569 1,716 4,742 2,979 3,558 4,374 5,364 7,982 8,267

16,451 * 21,719 20,442 25,158 36,161 31,355 37,199 43,967 34,479 39,193 38,814 42,490 44,063 49,730 64,191 74,H 4 68,479 53,407 66,903 72,068 75,088 80,657 70,574 76,521 80,606 90,420 87,050 103,344 103,403 124,480

T o ta l.. * A s o f l u l y 3 1 , 1 9 0 0 ; n o t r e p o r te d s e p a r a te ly b e fo re t h is d a t e .

Excess of assets over liabilities Increase or over Amount decrease preceding year.* 54,646 42,556 64,931 62,909 42,236 60,124 72,305 55.587 29,419 116,384 142,094 104,896 99,766 9 1.95° 104,200

12,0(10

37

™, S 2,022 20,673

17,888 I2 ,l8 l

16,718 26,168

86,965 25,710

37,198 5,130 7,8 l6

12,250 49.554

4 D e c re a s e s in ita lic s.

94

C A N A D A ’S B A L A N C E OF T R A D E

Interest Rates on Foreign Capital invested in Canada

The final results of the calculation made in Table XXVI rep­ resent the amounts of foreign capital invested in Canada minus the interest payments by Canada on these investments. If esti­ mates are made of the rates of interest paid on foreign capital invested in Canada, and of the total amount of foreign capital in Canada at the beginning of the period, it will be possible from the results of Table XXVI to calculate the amounts of the interest payments made by Canada and of the investments of foreign capital in Canada during the period of this study. As the interest on foreign capital invested in Canada was an important item in the Canadian balance of international indebtedTA B LE X X V C

a n a d ia n

C

a p it a l

I n vestm T

ents

h erefrom

A

broad

, 19 0 0

to

and

I n t e r e st R e c e ip t s

19 13

I n thousands of dollars Investm ents by Canadian banks in

M iscellaneous Canadian investments abroad

T o ta l >

12,090

2,00 0

2,860

9 7 ,1 4 0

4,0 00

22.375

2 ,0 0 0

2 8 ,6 9 9

125.839

3 .8 8 6

3 .2 6 6

1 2 9 ,1 0 s

Y ear Foreign securities

Banking abroad 1

1 901

7.230 4,324

19 0 2

3 ,2 8 8

1903

950

2,022 20,673

3,0 0 0

16,723

19 0 4

905

262

1 7 ,8 8 8

3,0 0 0

2 1 ,1 5 0

604

I 2 ,l8 l

3 ,0 0 0

19 0 6

1 ,2 0 4

16,718 26,168

3,0 0 0 4 ,0 0 0

r2,514 21,824

8 6 ,9 6 5

4 ,0 0 0

92,459

4 ,0 0 0

3 3 ,6 0 2

2 0 7,4 3 8 2 4 1,0 4 0

5 ,0 0 0

25,886

215,154 2 1 8 ,4 2 2

1

19 0 9

344 1.494 3.892

19 10

6 ,3 1 2

1907 19 0 8

3 . 58 o

19 11 19 12

1913 T o ta l..

Interest receipts therefrom *

10 0 ,0 0 0

18 9 9 19 0 0

T o ta l Canadian capital abroad

25,710

37 , 19S 5,130

2,00 0

15.785

5 ,0 0 0

3 , 45o

2 ,6 3 4 1 ,5 1 2

7,8l6

5 ,0 0 0

182

1 2 ,2 5 0

5 .0 0 0

1 8 ,7 6 2

37,630

49.554

50,0 0 0

1 3 7 ,1 8 4

5.034

1 1 2 ,3 8 2

133.532 149,317 1 3 6 ,8 0 3 1 1 4 ,9 7 9

2 18 ,6 0 4

237,184

5 .1 6 4

4,495 5.341 5.973 5,472 4.599 8 ,2 9 8 9 ,6 4 2 8 ,6 0 6

8,744 8,737 8 7 ,9 9 1

1 W ithdraw als of capital from abroad in italics. 5 Four per cent of amounts, one year preceding, of total Canadian capital abroad.

TABLE XXVI P r e l im in a r y B a l a n c e o f I n t e r n a t io n a l I n d e b t e d n e s s , 1 9 0 0 t o 1 9 1 3

Cred its

Services

Year

IQOO

Com ­ m odity im ports (T a b le III)

189,176

Non­ Freight com mer­ p ay­ cial ments debits by (T a b le Canada X) (T a b le X V I)

7.113

8*3

9,210

9,550 9.044

5*7

5.935

710

6,405

15.050

10,831

3.079

3.338

11.380

3.151

11,584

4,687

11,404

14,128

3.310 3.053

> 29,991

45.833

14.557 >y foreign invest­ m ents in Canada

5-33 5-°4

3-51 3 -5 i 3-64 3-84 3-94 3-90

4-39 4-44 4-43 4-63

3-67 3-67 3-67 3-67

4-03 4-05 4-05 4 - iS

4 .7 1

363

4 .1 7 4 .0 8

6 .7

S-00

4 .2 2

4 .6 4

363 3 .6 6

7 .0

5 .2 2

4 .1 2

7-3 6-5

5-29

4-32

5-09 5 -i8

5 .0 6

4 .2 9

4 .7 6

6 .4

504

6 .1

5 .0 6

5-9

4-36 4-50

5 .0 6

4 .6 1

5-21

5-43

5-5 5-5 5-5 6-3 6-5 6-3

6 .0

4 .9 9 5 .0 0 4 .9 4 5 .2 0

4-53

4-83 4 .8 8

5-01 5-47

3-57 3-56 3-56 3-53 3-49 3-47 3-43

4 - iS 4-33 4-37 4 .1 6 4 .1 8 4 .1 8 4 .2 4

4-45

' C. H. Burgess, "Review of the Municipal Bond Market, 1806-1013,” in Monetary Times Annual, January, 1014. PP- 80,81. ’ Cost o f Living Report, vol. ii, p. 635; 55 common stocks, 5 preferred stocks, and 0 bonds used in making up these averages. * Computed from statistics in Canada Year Boots and Annual Reports of the Superintendent of Insurance, covering the amounts of income-earning assets in Canada and the interest and dividends from stocks, etc. * Canada: Public Accounts, IQ 1 4 , p. ~s; based on par value of bonded debt, and exclusive of do­ mestic loans.

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

99

for the yield of Canadian government bonds on a par value basis equal weight with the seven other indices combined. Canada was obliged to pay interest, during the period under study, on foreign capital invested in Canada before 1900 as well as on the capital invested subsequent to 1900. Unless the loans matured and were converted to new loans on a different interest basis, the rates of interest payable on the investments made be­ fore 1900 would be those current at the time such investments were made. Interest rates were relatively high before 1890 but were at an unusually low level in the last decade of the nineteenth century. In 1898 the Canadian government placed a large-sized loan at a price to yield only slightly over 2§ per cent. Foreign investments made in Canada prior to 1900 consisted to a great extent of gov­ ernment and municipal loans and low-yield railroad and public utility bonds. Some important share investments had failed to yield dividends. It is estimated that on investments of foreign capital in Canada made before 1900 the average yield was 3 per cent until 1907, and, to make allowance for later conversion of old loans at higher rates, 4 per cent after 1907. Sir Frederick Williams-Taylor, for many years the manager of the Bank of Montreal in London, in 1902 estimated at £205,405,100 the total investments of British capital in Canada to date, through public flotations of securities.1 In 1900 and 1901 the total public issue in London of new Canadian securities amounted to £2,282,000,2 making the total public investment of British capital in Canada amount, at the end of 1899, to £203,123,100, or $989,209,497. Adding $150,000,000 for United States in­ vestments in Canada,3 and $60,000,000 for British investments privately made and for investments in Canada of all other coun­ tries, gives a total investment, of foreign capital in Canada at the beginning of 1900, of approximately $1,200,000,000. 1 F . W illiam s-Taylor, “ Canadian Loans in London,” United Empire, December, 1912. 1 Economist (London), N ovem ber 16, 1912, p. 1013. 3 T he estim ate m ade by N . T . Bacon, “ American International Indebtedness,” Yale Review, November, 1900. I t conforms fairly well in its total figure, although not in details, to estim ates m ade by other w riters for later years. See C hapter VI, pp. 127 seq.

IOO

C A N A D A 'S B A L A N C E OF T R A D E

In

vestm en ts

In

of

terest

F

o r e ig n

P

C

a p it a l

aym en ts

by

C

in

C

an ada

,

and

anada

Interest on $1,200,000,000 at 3 per cent gives $36,000,000 as . the amount of interest paid by Canada in 1900 on investments of foreign capital in Canada. Table XXVI presented for each year the investments of Canadian capital abroad and the Canadian net balances of indebtedness, but with interest payments by Canada unaccounted for. Subtraction from the interest pay­ ments by Canada, in 1900, of the preliminary credit balance for 1900, as shown in Table XXVI, gives as a result the amount of investment of foreign capital in Canada in that year. For each subsequent year there must be included, Ln the statement of the interest payments by Canada, interest on foreign capital invested in Canada from the beginning of 1900 to the end of the year pre­ ceding, as well as interest on foreign capital invested in Canada before 1900. The net investment of foreign capital in Canada in each year can be ascertained by adding as debits the total in­ terest payments by Canada in the corresponding year, to the preliminary balances of indebtedness shown in Table XXVI. In Table X X V III the procedure explained in the foregoing paragraph is used to ascertain the amounts of both the annual payments of interest by Canada and the annual n e t1 investments of foreign capital in Canada. In the calculation of the amount of interest payments, the index presented in Table XXVII is used for interest payments on capital invested subsequent to January 1, 1900, and the estimate of 3 per cent until 1907 and 4 per cent after 1907 is used for investments made prior to 1900. The total interest and dividend payments to be made in or by Canada were estimated for 1912 by the Financial Post of Toronto, on the basis of the January payments through Canadian banks, of company reports and of the government loan statement, at $190,313,704. Of this total, $70,313,704 were accounted for by interest and dividends on listed securities payable in Canada, leaving $120,000,000 as the interest on foreign investments in 1 I.

e.,

the excess of new investm ents over liquidation of old investments.

IOI

B A L A N C E OF I N T E R N A T I O N A L I N D E B T E D N E S S

Canada.1 In the present calculation the interest payments on foreign investments in Canada were estimated for 1912 as $117,466,000, which is under the circumstances a very close agreement. It should be noted that foreign investments in Canada are the only item for which a direct estimate was not made, and that the estimate for the amount of such investments was obtained on the a p r i o r i assumption that immediate obligations must approxi­ mately balance each other each year and that any debit surplus remaining after the Canadian investments of capital abroad, plus 1 R eported in U. S. Commerce Reports, February 1, 1912. TA B LE X X V III C

a p it a l

In vestm

ents

in

C

anada

and

I n ter est P

aym en ts

T

h ereon

In thousands o f dollars

I Y ear

T o ta l debit balance from T able X X V I'

Interest paym ents by C anada on capital invested in Canada

II Before 1900

19 0 0

2 ,3 0 8

3 6 ,0 0 0

1901

12,599

3 6 ,0 0 0

19 0 2

8 ,7 0 2

3 6 ,0 0 0

1903

h ,758 69,173 51,367 47,397

III From i q o o to y e a r previous to given year, inclusive

IV T o ta l

3 6 ,0 0 0

15,675

i 19 0 8

1 0 4 ,3 4 0

36 ,0 0 0

2 0 ,6 45

1 4 8 ,3 1 8

48 ,0 0 0

2 7 ,8 7 1

19 0 9

1 0 9 ,5 9 0

48 ,0 0 0

3 5 ,8 5 8

8 3 ,8 5 8

19 10

1 3 2 ,6 1 5

4 8 ,0 0 0

4 4 ,1 1 6

9 2 ,1 1 6

19 11

2 5 6 ,6 9 2

48 ,0 0 0

53 , 5 10

1 0 1 ,5 1 0

48 ,0 0 0

6 9 ,4 6 6

1 1 7 ,4 6 6

48 ,0 0 0

8 9 ,2 2 6

1 3 7 ,2 2 6

S 7 6,000

3 8 4 ,2 0 0

9 6 0 ,2 0 0

1905 19 0 6

9°7

19 13

317,536 295,859

T o ta l

1 ,5 4 6 ,2 3 4

19 12

3 6 ,0 0 0

1,365 3,388 4,741 6,957

3 6 ,0 0 0

1 1 ,3 8 2

3 6 ,0 0 0

1 Credit balances in italics.

Capital invested in Canada in given year (I + IV)

36 ,0 0 0

37,365 39,388 40,741 42,957 47,382 5«,675 56,645 75,871

19 0 4

V

33,692 49,964

33,692

3 0 ,6 8 6

8 3 ,6 5 6

52,499

1 1 4 ,2 4 2

1 1 2 ,1 3 0

98,749 99,072 i

VI T o ta l capital i n’ves ted in Canada from i q o o to year previous to given year, inclusive

6 o ,9 8 s o

2 2 4 ,1 8 9

193,448

2 2 4 ,7 3 1 3 5 8 ,2 0 2

V II Average rate of interest (Table X X V II) per cent s

4-05 4-05 4-15

1 6 6 ,8 4 1

4 .1 7

2 7 8 ,9 7 1

4 .0 8

377,720 476,792 637,777

4-15 4-33 4-37

8 6 1 ,9 6 6

4 .1 6

1, 055,414

4 .1 8

1 ,2 8 0 ,1 4 5

435,002 1, 638,347 4 3 3 ,0 8 5 2 , 073,349

2 ,5 0 6 ,4 3 4

1 Used in computing estimates in column III.

4 .1 8 4 .2 4

4-45

102

C A N A D A 'S B A L A N C E O F T R A D E

all the debit items, had been set off against all the credit items, must represent Canadian debit obligations whose settlement was deferred, that is, foreign investments of capital in Canada. By this method the estimate of the final balance when presented will bear an unearned air of exactitude. On the other hand, if direct evidence with regard to the amount of foreign capital in Canada approximately bears out the estimates reached here indirectly, it may be justly regarded as a satisfactory verification of the calcu­ lations made in this chapter, including the estimates for all the other items. The comparison of the estimate reached here of the amount of foreign capital invested in Canada with the direct evidence dealing with these investments is postponed to the next chapter. TABLE X X IX T

he

B alance

of

S e r v ic e T

r a n s a c t io n s ,

19 0 0

to

19 13

I n thousands o f dollars

-------------------D ebits Year

19 0 0

F reisb t p a y­ m en ts b y C anada (T a b le X V I) 9 ,2 1 0

Insurance paym ents by Canada (T able X I X ) '

T o urist expenditures b y Canadians (T a b ic X X I I )

527

5,935

710

6 ,4 0 5

Interest paym ents by Canada (T able X X V III)

T o ta l debits

3 6 ,0 0 0

5 0 ,6 1 8

19 0 2

9 . 55 ° 9.944

19 0 3

10 ,8 3 1

19 0 4

1 1 ,3 8 0

3,152

7,527 7,414 8,930

12 ,5 8 4

1 1 ,4 0 4

4 ,6 8 4

19 0 7

4,557 15,546

4 ,6 8 7

>

3 , 2 »o

15,369 15.823

19 0 8

1 4 ,1 2 8

3 ,0 5 2

1 8 ,1 3 0

i i i

19 0 9

75,871

>

4 ,1 9 8

»

8 3 ,8 5 8

1 2 3 ,0 6 3

19 10

18 ,7 8 5 2 3 ,1 2 1

3 ,8 5 4

2 5 .0 3 8

9 2 ,1 1 6

>

19 11

4 ,9 2 7

2 8 ,6 18

1 0 1 ,5 1 0

19 12

2 8 ,5 0 9

1913

6,357

2 8 ,6 5 3

2 2 2 ,2 2 3

19 0 1

I

90 S

19 0 6

T o ta l..

5,425

4 .2 8 5

3 ,0*9

9,582

37,365 39,388 40,741 42,957 47,382 51.675

54,030 6 1 ,1 4 4 6 2 ,0 6 5

6 0 ,1 1 5 7 6 ,0 5 7 8 6 ,2 8 5 9 1 ,2 2 4

5 6 ,6 4 5

,i 8i

39.793

1 5 8 ,1 7 6

1 1 7 ,4 6 6

185,337

6 ,4 0 0

33,005 37 , 2 i o

1 3 7 ,2 2 6

20 9 ,48 9

45,764

2 4 0 ,3 9 0

9 6 0 ,2 0 0

1 ,4 6 8 ,5 7 7

1 Excess of expenditures over premium income in italics.

B A L A N C E OF IN T ER N A TIO N A L IN D E B TE D N E SS T

he

B

alance

S e r v ic e

of

T

103

r a n s a c t io n s

Before proceeding to the tabulation of the final balance of Canadian indebtedness, there can be presented, now that the interest payments by Canada have been estimated, the balance of service transactions (Table XXIX). T

h e

C

a n a d ia n

B

alance

In

of

190 0

t e r n a t io n a l

In

d ebted n ess,

1913

to

The Canadian balance of international indebtedness can now be computed from the three partial balances. In the calculation of international balances of indebtedness, usage is fairly evenly divided between, on the one hand, the practice of adding imports of services to imports of commodities, and, on the other hand, the TABLE T

he

B alance

of

Se r v ic e T

X X IX r a n s a c t io n s ,

19 0 0

to

19 13

I11 thousands of dollars Credits

Y ear

Freight p a y ­ Insurance T o urist Interest ments to paym ents to paym ents to expenditures Canada Canada in C anada Canada (Table (T a b le X X ) (T a b le X X I) (T a b le X X V ) X V III)

19 0 0

3>630

669

1901

4 ,0 1 1

924

90 S

4,333 4,549 3 ,93 * 4,457

i

19 0 6 19 0 7

19 0 2

1903 19 0 4 1

19 0 8 19 0 9 19 10 19 11 19 12 19 1

3

T o ta l. .

7,054 7,990

1 ,1 6 2

1 1 ,0 4 8

1,4 6 3

1 0 ,5 2 6

1 ,6 4 7

1 2 ,7 8 4

,953

13,344

5 ,0 6 2

2 ,0 2 3

1 6 ,7 9 6

5 ,0 8 1

2 ,3 1 3

1 6 ,1 9 4

5,303 5,774 5 ,9 o 8 5,931 7,259

2,497

19 ,2 0 2

2 ,98 0

9,553 24,744

3 ,2 6 1

2 6 ,2 1 6

2 ,7 8 9

3 ,6 4 6

9 ,2 1 0

3,997

74,439

3 i ,324

‘

2 9 ,4 0 3

30,457 245 , 3 "

5,353

4 ,0 0 0

* 1 6 ,8 1 1

3 ,8 8 6

5,034 5,>64 4,495 5,341 5,973 5,472 4,599

21,577 2 1 ,7 0 2 2 2 ,8 5 7

25,095 29,854 2 9,0 60 3 1 ,6 0 1

36,414 43,274

8 ,2 9 8 9 ,6 4 2 8 ,6 0 6

8,744 8,737 8 7 ,9 9 1

T o ta l credits

•

4 4 ,0 1 4

D ebit balances

35,265 37 , 2*9 39,567 40,363 37,258 5 0 ,9 6 2

56,431 6 2 ,1 6 4

79,580

8 6 ,6 4 9

96,519 1 1 4 ,1 6 2

49,052

* 3 6 ,2 8 5

5 2 ,4 0 1

1 5 7 ,0 8 8

439,065

1 ,0 2 9 ,5 1 2

v

104

C A N A D A ’S B A L A N C E O F T R A D E

practice of subtracting, as an offsetting factor, the imports of services from the exports of commodities. If the ascertainment of the balance of indebtedness is the only object sought, both usages bring identical results, and the divergence is to be regarded merely as a difference in bookkeeping methods. But logically the addition of imports of services to imports of commodities ap­ pears to have greater claim to validity. If what is sought is the total volume of international trade, including the trade in both commodities and services, the only valid method is to total all imports, whether of commodities or of services, on the one side, and all exports, whether of commodities or of services, on the other. Non-commercial transactions cannot, however, be logically handled in the same manner. They are unilateral in character and, in so far as the total volume of international trade is con­ cerned, they exhaust their effect in bringing about an import or export of commodities or services already accounted for in the commodity and service balances of trade. To add the non-com­ mercial debits to the other debits, and the non-commercial credits to the other credits, is to exaggerate the volume of international transactions. To subtract non-commercial debits from commer­ cial credits, and non-commercial credits from commercial debits, on the other hand, is to underestimate the volume of international transactions. In order to make the statement of the balance of in­ ternational indebtedness represent also as closely as is practicable the total volume of international transactions, the method used will be to add to total commodity and service debits the debit bal­ ances of non-commercial transactions, and to add to commodity and service credits the credit balances of non-commercial transac­ tions. As these balances were small, the total debits and the total credits will not appreciably exaggerate nor underestimate the actual volume of international transactions. Tables X X X and XXXI, which follow below, summarize in tabular form the material presented so far in Part I of this study. Table XXX presents the Canadian balance of international in­ debtedness for the period of this study. Table X X X I shows that this balance was the result of a corresponding excess of Canadian borrowings from abroad over Canadian loans abroad.

B A L A N C E OF IN T ER N A TIO N A L IN D EB TE D N E SS

105

TABLE XX X T

he

C

a n a d ia n

B

alance

of

I n t e r n a t i o n a l I n d e b t e d n e s s , 19 0 0

to

19 13

In thousands of dollars D ebits Year

Com m odity Imports (T a b le III)

D ebit service transactions (T a b le X X I X )

19 0 0

1 8 9 ,2 7 6

5 0 ,6 1 8

1901

1 9 2 ,6 4 6

54,030

19 0 2

2 1 2 ,8 3 0

6 1 ,1 4 4

19 0 3

2 6 5 ,2 8 2

6 2 ,0 6 5

19 0 4

2 5 6 ,8 2 7

6 0 ,1 1 5

1905

2 6 9 ,2 3 7

7 6 ,0 5 7

19 0 8

329.560 392,539 3 * 2,575

19 0 9

3 6 1 ,8 6 2

12 3 ,0 6 3

139,793

19 11

450,371 534,168

19 12

6 5 1 ,2 3 2

1913

185,337

6 9 4 ,2 0 5

5 ,1 1 2 ,6 1 0

19 0 6 19 0 7

19 10

T o t a l ------

Non-commcrcial debit balances (T a b le X )

T o ta l debits

239,894 2 4 6 ,6 7 6

273,974 327,347 3 1 6 ,9 4 2

345,294 415,845

8 6 ,2 8 5 9 1 ,2 2 4

4 8 3 ,7 6 3

431,388

2 0 9 ,4 8 9

7,632 4 375 8,033 23,391 34,431

938,125

1 ,4 6 8 ,5 7 7

7 3 ,8 6 6

6 ,6 5 5 ,0 5 3

I I I , l8 l

1 5 8 ,1 7 6

4 8 4 ,9 2 9

590,539 7 0 0 ,3 7 7 8 5 9 ,9 6 0

Credits Y ear

Com m odity exports (T a b le III)

Credit scrvicc transactions (T able X X I X )

N oncom m er­ cia l credit balances (Table X )

246,554 2 5 8 ,1 2 5

6 9 ,2 2 2

2 2 5 ,9 6 2

9 0 ,9 8 0

19 00

18 4 ,9 4 0

15,353

19 0 1

2 0 5 ,1 6 9

1 6 ,8 1 1

19 0 2

2 1 5 ,9 0 0

*903

226,799

2 i ,577

3,049 3,431 9,077

2 1 ,7 0 2

9 ,6 2 4

19 0 4

19 8 ,0 5 9

2 2 ,8 5 7

>905

2 2 9 ,0 9 8

2 5 ,0 9 5

5,046 8,137

2 9 ,8 5 4

6 ,6 6 8 568

19 0 6

267,737

19 0 7

2 7 1 ,3 2 6

29,0 60

19 0 8

2 6 8 ,0 5 7

3 1 ,6 0 1 3 6 ,4 1 4

19 0 9

2 8 8 ,6 69

19 10

2 9 6 ,6 4 8

43,274

19 11

3 0 1 ,6 1 1

4 4 ,0 1 4

19 12

>913 T o ta l..

375,724 47 *,4 0 1 3 ,8 0 1 ,1 3 8

2 0 3 ,3 4 2 2 2 5 ,4 1 1

2 6 2 ,3 3 0

304,259 300,954

5 2 ,4 0 1 4 5 ,6 o o

D ebit balances of indebtedness

36,552 2 1 ,2 6 5

27,420 8 2 ,9 6 4 1 1 1 ,5 8 6 18 2 ,8 0 9

2 9 9 ,6 5 8

131,730

3 2 5 ,0 8 3

1 5 9 ,8 4 6

4 2 4 ,7 7 6

523,802

354,752 435,184 4 X4,323

4 ,2 8 5 ,8 0 3

2 ,3 6 9 ,2 5 0

339,92 2 345,625

49,052 439 ,o 65

T o ta l credits

2 5 0 ,6 1 7

io 6

C A N A D A 'S B A L A N C E O F T R A D E

C o m p a r is o n

of

P r e s e n t C a l c u l a t io n C a l c u l a t io n

w it h

C o a t s ’s

Table X X X II presents a comparison of the results of the present calculation for the entire period 1900 to 1913 with Coats’s calculation for approximately the same period. In general the calculations are not in close agreement either as to total results or as to the constituent items. The divergencies are due in part to the varying periods covered by the data used by Coats,1 and to his use of the uncorrected statistics of imports and exports. In the main, however, they are due to the use, in the two calcula­ tions, of different statistical data and of different methods of 1 H is study in some of its details covers the years 1900-1913; in others, 19001914; in a few instances the period covered is less th an fourteen years. T A B LE X X X I T

he

B

alance

of

I n t e r n a t io n a l I n d e b t e d n e s s

1900

to

1913

and

C

a p it a l

In vestm

en ts,

In thousands of dollars

I Foreign investments of capital in Canada (Tabic X X V III)

Y ear

II Canadian invest­ ments of cap ital abroad (T able X X V ) >

111 T h e Canadian debit balancc of interna­ tional indebtedness (I-II)

1 9 0 0 .................................................

33.692

2,860

36,552

1 9 0 1 .................................................

4 9 ,9 6 4

2 8 ,6 9 9

2 1 ,2 6 5

1 9 0 2 .................................................

383,170 «77,769 166,481 255,084

1,217,927

1,249,433

1,299,346

Economist (L o n d o n ), J u l y 8, 1911. an d Ju n e 13, iQ U - C o nverted from £ sterling a t $4.87 = £1. Statist (L o n d o n ), Supplem ent, F e b ru a ry 14, 1914. Co nverted from £ sterling a t $4.87 = £ j. Capital Investments in Canada 213 2,577 441

1,152 182

1,028

392 1,336 634 1,670

1,284 1 ,1 5 1 S28

5,382

696

148

11,0 72

923

767

1,051 1,0 19

319 564 1,6 5 7 4,933 330 233 543

2,124

432

391

8 16

1,10 7

7,842 1,009

432

64

449

923

654

763-

1,560

2,910

1,159

623

2,179 3,415 3^5 5,0 78 806

1,525

26

423

1910

1911

2

XQX

1,713

2,032

1,838

1,502

229

1,2 1 2

122

1,984

2,100

688

1,583 926

149

I ,° I S 902

1,589

146

1,369

1,483

1,702

398

I,

8 ,12 6

492

1,784

1,036

262

597 1,3^5 10

1 90 9

1,747 2,999

2,363 1 ,4 1 1

1,043 12

1,489

2,713

5 45

1,444 6,304 3,593 727 5,090 1,321 2,356 1,549 149 172 2,708 8,715 5,298 I »OI7 5,509 4,201 21,6 74 i

59 I

2,145

2 ,1 3 !

35 °

1,806

568

744 3,046 166

*,454 1,782

91

3,505

3,982

677 2,392

3,857

4,663

643

1,970

i,

943

1,0 18

4,225

1,869

2,404 13,054

1,260 1,897

5>9

374

789

2 ,170

646

438

6 ,710 15,485

519 334 19,458

3,223 10,484

6,818 11,9 8 6 28,190

,775

1913

h

2,925

2,405

2,862

999 2,349

112

1,622

A v e r a g e M o n th ly D e b it B a l a n c e o f I n d e b t e d n e ss 3 2,808

4,164

2,557 4,375 9,344

1 Decreases in italics. 1 Computed from official reports of Receiver-General and of banks as published m onthly in Canada Gaztlle. From the holdings of specie in Canada and elsewhere reported by the banks, deduction w as made for each month, of 17 per cent of the amount of deposits outside of Canada. See p . 30, T able II, note 2, supra.

8,229

8,089

13,415

18,682 1 6 ,12 1 18 ,728 29,850 36,250 36,090

* Com puted from T ab le X X X , p. 105, supra. ‘ Insufficient data published to m ake possible the present calculation for these months,

OF A D J U S T M E N T

J u l y .................................................................

4 4 4

M a y ................................................................

212

403 2,536

1908

M ECU AN ISM

J a n u a r y .........................................................

1 907

1 62

C A N A D A 'S B A L A N C E O F T R A D E

greater. If variations in exchange rates and in gold movements, operating, through their influence on relative prices, on the profit­ ability of import and export, comprise the entire mechanism of adjustment of trade balances, should not the tremendous and irregular inflow of capital into Canada have been accompanied by gold movements much more substantial and marked by much greater fluctuations than are indicated in the above table? When consideration is given to the fact that most, if not all, of the gold movements can be adequately explained by reference to internal banking and currency conditions in Canada and without direct reference to the borrowings abroad, the question just raised ac­ quires even greater significance. In the five-year period from August, 1901, to August, 1906, the only net monthly change in the Canadian stock of monetary gold which exceeded $3,000,000, namely, the increase in May, 1903, amounting to $4,829,000, was due to the coming into force of the Savings Bank Act of 1903, which for the first time required the government to keep a reserve in gold — 10 per cent — against the deposits in the Government Savings Bank, and cannot therefore be attributed to the influence of Canadian borrowings abroad. The general upward trend of the Canadian monetary stocks of gold during the period under study can reasonably be supposed to reflect nothing more than the fairly steady growth in the Canadian need for currency and banking reserves during a period of expanding population, in­ dustry, and commerce, and of world-wide buoyancy in prices. Further analysis is necessary, especially of the relation of gold to banking in Canada, before the data presented in Table XLV can be justifiably offered as a satisfactory inductive verification of the theory of gold movements as expounded by Mill and other writers of the classical school. The government holdings of gold were strictly regulated by statutory requirements. The government reserves against gov­ ernment savings-bank deposits clearly were independent of the inward flow of capital into Canada, and may therefore be disre­ garded in the search for evidence of the influence of borrowings abroad on Canada’s stocks of monetary gold. With the excep­ tion of the original issue of the uncovered portion of the Dominion

M E C H A N I S M OF A D J U S T M E N T

163

notes, the government never takes the initiative in the issue of these notes but awaits the presentation of gold for notes before putting them out into circulation. The uncovered issue of Do­ minion notes during the period under study never exceeded by more than a fewmillion dollars, and often fell below, the amount of total circulation of Dominion notes outside of the banks. With respect to its holdings of gold against the remainder of the Do­ minion notes, the government, therefore, was virtually acting as custodian for the gold of the banks. If the government holdings of gold are disregarded, and the bank holdings of Dominion notes are treated as if they were gold, analysis of the relationship between Canada’s gold stocks and borrowings abroad may be confined to the bank holdings without any appreciable error. The next chap­ ter deals with the relationship of the Canadian banks to gold movements into and out of Canada.

CHAPTER VIII TH E CANADIAN BANKS AND TH E ADJUSTM ENT OF INTERNATIONAL BALANCES T h e “ C ash R

e s e r v e s ” o f t h e C a n a d ia n M ovem ents

B an ks,

and

G old

The

holdings of specie and D om inion notes of the Can adian banks are kn ow n as their “ cash reserves” again st dem and

liabilities.

T h e m onthly reports of the banks to the governm ent

have, since A u gu st, 1900, been sufficiently detailed to perm it of the separation of the item s relatin g to their operations in C an ada from those relatin g to their operations outside of C a n ad a .1 T h e to tal dem and liabilities in C an ad a include the note circulation of the banks, their “ d em an d ” and “ tim e” deposits, and the de­ posits of the D om inion and provincial governm en ts w ith the b anks. T h e “ d em an d ” deposits represent non-interest-bearing com m ercial deposits p ayable on demand. T h e “ tim e ” deposits represent interest-bearing deposits of tw o classes, n ot separated in the returns: interest-bearing com m ercial deposits p ay a b le on a fixed date, and savings deposits p ayable o n ly after notice. In practice the restrictions again st free checking on tim e deposits are n ot strictly enforced. In addition to the “ cash reserves,” the larger banks m aintain “ secondary reserves” outside of Canada, in the form of loans on call, m ainly in N e w Y o r k , and n et balances due from banks outside of C an ada. T h e official returns are made m on th ly as of the final d a y of the month. C h a rt I I presents for three-m onth in tervals the am ounts of the to tal dem and liabilities in C an ad a of the C an adian banks, the

1 This does not hold true of the bank returns of holdings of specie and Dominion notes, which did n ot separate holdings in C anada from holdings elsewhere than in C anada until July, 1913. For the m ethod used in this study of estim ating the am ounts of specie holdings in C anada, see p. 30, supra. T he holdings of Dominion notes outside of Canada were negligible in am ount and m ay be safely disregarded. D uring the last six m onths of 1913, when they were separately reported, they aver­ aged under $15,000. . 164

•

i

| I t

f

\

/ !

‘

/

\

K

OF CANADIAN BANKS

/ 1 \ ; /

)

>

M E C H A N I S M OF A D J U S T M E N T

RESERVES

/

i i

( )

100.

Constructed b y C o ats

(ibid.,

p. 240), from the price quotations for the id en tical commodities included in his w orld index. 1 W o rld , Coats’s In d e x : — 145 commodities, unweighted.

Prices in 1900 = 100.

(Ibid., p. 538.)

• W o rld , K n ib b s’s In dex:— T h is index, constructed b y G . H . K n ib b s, Com m onwealth Statistician of A u stra lia

(Prices, Prices Indexes and Cost 0/ Living in Australia, 1913, pp. 76 seq.) is based on the

averages o f the wholesale index num bers g iven in the best indices for th e countries included, viz.: G re a t B r ita in , Belgiu m , G e rm a n y , It a ly , Fra n c e , the U n ited States, N e w Z e alan d, A u stra lia , Canada. Knibbs, in com bining the indices, used weights representing re la tiv e populations. been carried beyond 1911.

H is index has not

2l 8

C A N A D A ’S B A L A N C E OF T R A D E

world price level. In the absence of any other conspicuous factor which could be cited in explanation of an upward movement in Canadian prices more than proportionate to the general world movement, a substantial relative rise, if it occurred, must be explained as due to the import of capital and therefore must be accepted as confirmatory of the classical theory. Chart IV compares two Canadian price indices with two world price indices, one constructed by R. H. Coats, the Dominion Statistician, from price quotations in various countries for spe­ cific commodities, and the other constructed by G . H. Knibbs, Statistician for Australia, from the price indices for various coun­ tries. Both world indices show a more moderate rise than either of the Canadian indices, and to this extent confirm the theory. The divergency between the two series is substantial, even though the methods of construction of the two world price indices, es­ pecially because they give too much weight to prices in the capitalborrowing countries, are such as to exaggerate the rise in world prices. The fairest comparison is probably between Coats’s Canadian and world price indices for the same 145 commodities. Coats says of his index of world prices that it has a defect “ in the fact that the averages for certain commodities represent a larger number of countries than those for others. For over forty articles in the . . . list, for example, the average is for Canada and the United States alone, where prices have been exceptionally buoyant. The . . . world numbers, therefore, might be pre­ sumed to err on the side of buoyancy.” The countries whose pricequotations were used in the construction of this index, grouped in ascending order according to the degree of “ buoyancy” which their prices showed, are as follows: (1) Great Britain, France, Italy, Belgium, Holland, and Norway; (2) Germany, Austria, Russia; (3) India, Australia, New Zealand; (4) Japan, Hungary, the United States, Canada. Although it is not to be contended that the international movement of capital is the sole factor determining the trend of price levels in different countries, it is significant that in general the capital-lending countries experi­ enced the least rise in prices, and the capital-borrowing countries the greatest rise. It is to be noted also that not only was the

219

M E C H A N I S M OF A D J U S T M E N T

CHART V W h o le s a le P r ic e s in C a n a d a a n d G r e a t B r it a in , ------------- C anada, w eighted — — — G reat B ritain, Labor D ep t. B oard of T rad e/ w eighted

19 0 0 -19 13

................ G reat B ritain, Sauerbeck ------— G reat B ritain, Economist

220

C A N A D A ’S B A L A N C E OF T R A D E

rise in the Canadian price level as compared with 1900 greater than in the world price level, but for most of the years of the period it was greater also than the rise in the price level of any other of the countries included in the index of world prices.1 A comparison between the Canadian price level and the price level of the world exclusive of Canada would show, therefore, an even more marked relative rise in Canadian prices. 1

Cost of Living Report, vol. ii, p. 243. DATA OF

CHART

V

W h o le s a le P r ic e s in C a n a d a a n d G r e a t B r it a in G re a t B r ita in Year

Canada weighted 1

L a b o r D ept. B o a rd of T ra d e weighted !

Sa u e rb e ck 3

Economist *

1 0 0 .0

1 9 0 0 ..............................................

1 0 0 .0

1 0 0 .0

10 0 .0

1 9 0 1 ..............................................

10 0 .2

9 6 .7

93-4

9 6 .4

1 9 0 2 ..............................................

10 3 .6

9 6 .4

9 2 .0

8 9 .I

1 0 3 .7

9 6 .9

9 2 .0

10 4 .5

9 8 .2

93-4

1903 .......................................... 1904 .......................................... 1905 ..........................................

9 7 .6

9 6 .0

10 0 .8

1 0 2 .7

1907 ..........................................

H 1 2 2 .1

9 9 .1

10 6 .0

1 0 6 .7

1 9 0 8 ..............................................

1 1 8 .2

1 0 3 .0

1909 ..........................................

97-4

104-5

1 1 9 .4

10 4 .1

9 8 .7

94-5

1 9 1 0 ..............................................

I2X .O

108 .8

10 4 .0

1 0 3 .2

1 9 1 1 ..............................................

1 2 3 .9

10 9 .4

1 0 6 .6

1 0 3 .6

1 9 1 2 ..............................................

I3 6 .O

1 x 4 .9

1913 ..........................................

I I

3 -9

1 1 6 .5

1 9 0 6 ..............................................

1 0 7 .6

3-5

90-5 92.7 945

3-3 H 3-3 ”

1 0 1 .4

1 0 6 .8 113-6

• C an ada: Cost of Living Report, v o l. ii, p. 22. O fficial Can adian index number weighted b y Coats on basis o f system suggested b y the B ritis h Association for the A d van cem en t of Science ( Reports of

Committee on Index Numbers, 1887-1890). O f th e 100 weight units, S S are given to foodstuffs raw and m anufactured, 10 to fuel, a to house furnishings, 11 to clothing, 22 to m etals, lumber, etc. Converted b y the w rite r from 1890-1899 to 1900 base.

A statistical error is in vo lved in th is conversion to a d if­

feren t base, of an index constructed from re la tiv e instead of a ctu a l prices (see U . S . D e p t, o f Labo r, B u re a u of L a b o r Statistics, Bulletin N o . 1S1, pp.

251 scq.) b u t it is unavoidable, and the great number

o f com m odities covered b y th e C an ad ian index, plus the fa ct th a t the 1900 prices were n o t g rea tly dif­ ferent from the average prices 1890-1899, m ake th e probable error a slight one.

1 Cost of Living Report, v ol. ii, pp. 148 seq. (G re a t B r ita in : La b o u r D e p t., Bo a rd of T r a d e ): weighted for 47 articles, chiefly ra w m aterials and foodstuffs.

P rices in 1900 = 100.

W eig h ted average of rel­

a tiv e prices for other years.

J Ibid., Sauerbcck (Lo nd on Statist): unw eighted index for 3a com m odities, chiefly raw materials and foodstuffs. P rices in J900 = 100. U nw eighted average of rela tive prices for other years.

* Ibid., London Economist: unweighted index for 43 commodities, c h iefly raw m aterials an d food­ stuffs.

Prices in 1900 = 100.

Ja n u a r y I each year.

U nw eighted average of rela tive prices for other years.

P rices as of

221

M ECH AN ISM OF A D JU STM E N T

C a n a d a ’s international econom ic relations are predom inantly w ith G re at B rita in and the U n ited States. Com parison of the trend of prices in C an ad a w ith the trend of prices in these two countries should therefore p rovid e a better inductive test of the tru th of the theory than com parison w ith the w orld a t large.

Prices in Canada compared with Prices in Great Britain C h a rt V com pares the official C an adian price index, weighted, w ith the official B ritish price index, w eighted on substan tially the sam e basis, and w ith tw o unofficial B ritish price indices. C h art V I com pares the trend of prices of fifty-tw o identical articles in C a n ad a and in G re at B ritain. B o th comparisons exhibit a clear and m arked rise in Canadian prices relative to B ritish prices. T h is is especially significant because, since the close com m ercial relationships of the tw o countries should tend to h a ve an equalizing influence on their price levels, the diver­ gency in prices can be m ore con fiden tly a ttributed to the fa ct th at C an ada and G reat B rita in stand, in relation to each other and to the w orld at large, as borrowing and lending countries respectively. A ll of the B ritish price indices are constructed predom inantly from quotation s for raw m aterials and foodstuffs. T hese are largely im port com m odities in G reat B ritain.1 In a lending coun try during a period of increasing loans abroad, such as this was for G reat B ritain,2 im port prices should rise relative to domestic and export prices. M oreover, the rise in prices through­ out the w orld after 1900 w as universally more m arked in raw m aterials and in foodstuffs than in m anufactured products.3 T h e

* Of the 47 price series used in constructing the B ritish B oard of T rade Price Index, 35 are n ot only for im port commodities b ut are the average im port values. (Cf. A. W . Flux, “ M easurem ent of Price Changes,” Journal o f the Royal Slatislical Society, vol. Ixxiv, p . 169.) 2 Cf. C. K . H obson, The Export o f Capital, p. 219. W o rld Year

1900. 1912.

R is e

in

P r ic e s

Foods

R a w m aterials

1 0 0 .0

1 0 0 .0

134.0 125.8 1913 (Cost o f Living Report, vol. ii, p. 247.)

3 -5

I S

130-4

M an u factu red products

100.0

117.2 118.3

222

C A N A D A ’S B A L A N C E O F T R A D E

C H A R T VI W h o l e s a l e P r ic e s in C a n a d a a n d G r e a t B r i t a i n , i 9 0 0 -19 13

( j 2 identical commodities) -------- C a n a d a

-------- G re a t B r ita in

223

M E C H A N I S M OF A D J U S T M E N T

Canadian index num ber gives adequate representation to m anu­ factured products, for over half of the quotations used are for m anufactured articles.

T h e B ritish price indices on the other

hand include v e ry few articles advanced beyond the prelim i­ nary stage o f m anufacture. T h e B ritish price indices m u st have tended, therefore, to exaggerate the upw ard trend of the B ritish price level.1 T h e greater rise shown b y the Canadian indices is therefore all the more significant.

Prices in Canada compared with Prices in the United States C an ad a is even m ore closely related econom ically to the U nited States than to G re at B ritain. M oreover, the U nited States was itself during this period a capital-borrow ing coun try, although not n early to the sam e degree as C an ada.2 A s there w as no sub-

1 Two other indices of British prices, one by A. L . Bowley and the other b y M rs. G. H . W ood, constructed so as to reflect more clearly the trend of the cost of living and therefore of dom estic prices, both show a much less pronounced rise in prices than the indices presented above. (Cost of Living Report, vol. ii, p. 157.) 1 Cf. Bullock, W illiams and T ucker, “ T he Balance of Trade of the United S tates,” Review of Economic Statistics, Prelim inary Vol. N o. 3, p. 230. DATA O F C H A RT VI W h o lesa le

P r ic e s

in

C anada

and

G reat

B r it a in

(52 identical commodities) 1 Year

190 0 190 1 190 2 190 3 190 4 1905 190 6 190 7 190 8 190 9 191 0 191 1 191 2

................... . . .................................................... .............................. ...............................

i9x3........................................................ 1

Cost 0 / Living Report, vo l.

Canada and G re a t B rita in .

ii, p p. 157 scq.

Canada

G re a t B r ita in

100.0 98.5 99.5 100.8 100.6 106.1 109-7 115.7 111.2 114.6 120.0 122.8 130.4 126.6

100.0 99 95.1 95.0 95.7 90.1 103.6 108.8 102.0 102.7 108.1 110.3 5-2 5-7

.I

U H

Unw eighted index for 53 identical com m odities in

Prices in 1900 = 100.

Canadian prices from D e p t, of La b o u r Reports.

British prices, 4 3 from D e p t, of L a b o u r, Bo ard of T rad e , 8 from Sauerbeck, 3 from

Economist.

224

C A N A D A 'S B A L A N C E O F T R A D E

stan tial change in tariff relations or in freight rates betw een the tw o countries during the period under study, the price indices of the tw o countries should be expected to show closely similar trends. On a priori grounds, there should be expected a m oder­ a te ly greater rise in prices in C a n ad a than in the U n ited States, because of the relatively and absolutely greater cap ital borrow ­ ings b y C an ad a than b y the U n ited States.

On the other hand,

th e grea t degree of self-sufficiency possessed b y the U n ited States pro b ab ly m akes its price level m ore independent of and less re­ sponsive to external influence than th a t of C an ada, and therefore m ore likely to m ove in response to purely dom estic conditions. C h a r t V I I com pares the official price indices of the two countries, w eighted and unweighted.

B o th index num bers are

constructed from quotations for a considerable num ber o f com ­ m odities, m any of w hich are common to both.

R a w m aterials,

foodstuffs, and m anufactured products receive representation in abou t the same proportions in b o th indices. D ifferen t methods are used, how ever, in w eighting the tw o indices. T h e Am erican index is w eighted w ith reference to relative im portance in output, w hereas the C an adian index is w eighted m ore crudely and w ith reference to supposed relative im portance in consum ption. T h e w eighted index num ber of prices in C an ad a showed a m uch more pronounced rise than the unweighted, w hereas for the U n ited S tates index the w eighting made little change in the final results. T h e unweighted index num bers for the tw o countries k e p t closely together from 1900 to 19 11, w ith the A m erican index num ber for each y e a r generally higher than the C anadian. O nly after 19 11 docs the C an adian unw eighted index num ber show a d istin ctly more pronounced rise in prices, as com pared to 1900, than does the A m erican. In general, statistical a u th o rity would support the use of w eighted in preference to unw eighted index num bers as meas­ ures of the general trend of prices, if the w eights used were n ot w holly arbitrary, b u t were based even though v e ry roughly on th e relative im portance of the com m odities included in the index. T h e w eighted index for C an ad a shows a decidedly more pronounced rise than the A m erican w eighted index in the years

M ECH AN ISM OF A D JU S T M E N T

C H A R T V II W h o lesa le

P r ic e s

in

C anada

-------- C a n a d a , unweighted — — —

C a n a d a , w eighted

and

t h e

U n it e d

S t a t e s , 1900-1913

-------U n ite d States, unweighted .............. U n ited States, weighted

225

226

C A N A D A 'S B A L A N C E OF T R A D E

191 x to 1913, years in w hich the Can adian borrowings showed sharp increases over the preceding y ea r.1 A further basis for com parison of price trends in the tw o coun­ tries is furnished b y index num bers constructed b y C o ats from price quotations for 135 articles common to the official indices of b o th countries. T h ese indices, presented in T a b le X L V I I I , show th a t as com pared w ith 1900, prices were higher in C an ad a than in the U n ited S tates in m ost of the years in w hich there were substan tial borrowings abroad b y C an ada, and th a t the greater b u o y a n cy of C an adian prices w as especially m arked from 19 11 to 1913, w hen the Can adian borrow ings were in greatest volum e. A ll of the com parisons m ade above betw een prices in C an ada and in the U n ited S ta te s indicate th a t the trends of prices in the

1 See Table X X X I, p. 106, supra. DATA

OF CH ART V n

W h o l e s a l e P r ic e s in C a n a d a a n d t h e U n it e d S t a t e s U n ited Sta te s

Can ada Y ear

W e ig h t e d 1

U n w e ig h te d 1

W e ig h te d 4

100.0

1 0 0 .0

1 0 0 .0

1 0 0 .0

9 8 .8 IO O .7 1 0 2 .1 1 0 2 .0 I O S .I I IO .9 1 1 6 .6 1 1 1 .6 1 1 2 .0

1 0 0 .2 1 0 3 .6

9 8 .2 1 O 2 .I 1 0 2 .8 1 0 2 .2 1 0 4 .9 1 1 0 .8 1 1 7 .2 I I I .I I I 4-5 1 1 9 .1 1 1 6 .9 1 2 0 .9

9 8 .8 1 0 6 .2 1 0 6 .2 1 0 7 .4 1 0 6 .2 1 0 9 .9

U n w e ig h te d '

1 9 0 0 ......................................................... 1 9 0 1 ......................................................... 1 9 0 2 .........................................................

»903 ........................................... I 9 ° 4 ......................................................... I 9 ° 5 .................... .................................... 1 9 0 6 .........................................................

I 9 ° 7 ......................................................... 1 9 0 8 .........................................................

1909 ...........................................

1 9 1 0 ......................................................... ..........................................

........

1 9 1 2 .........................................................

1913 ..........................................

1* 4-7 1 1 6 .8 1 2 4 .2 1 2 4 .8

•

103.7 104.5 1 0 7 .6

I I 3-5 1 2 2 .1 I l 8.2 I I 9 .4 1 2 1 .0 I2 3 .9 1 3 6 .0 I

3 I -9

1 C a n ada, unweighted: — a ll commodities, 373 articles. structed b y Coats to 1900 base.

J

1 2 2 .3

D e partm e nt of La b o u r index, recon­

(Cost 0/ Living Report, v o l. ii, p. 146 )

C a n ada, weighted: — see note 1 to C h a rt V . * U n ited States, unweighted: — a ll commodities, 255 articles. Sta tistics unweighted index, reconstructed b y C o ats to 1900 base. * U n ited States, weighted: — a ll commodities, 397 articles. Sta tistics weighted index

1 1 7-3 1 1 3 .6 1 2 1 .0 1 2 4 .7 1 1 8 .5 1 2 5 .9 1 2 4 .7

(Bulletin N o .

U n ited States B u re a u of La b o r

(Ibid., p. 166.)

U n ited S ta te s B u re a u of L a b o r

181 [1915I, P- >6)- Converted b y w rite r from 1914 base.

m ethod of construction of th is index number perm its of shifting of base w ith o u t error.

The

227

M ECH AN ISM OF A D JU S TM E N T

tw o countries k e p t closely together throughout m ost of the period, b u t th a t C an adian prices rose m uch m ore sharp ly than A m erican prices during the la st few years of the period when Can adian bor­ rowings were in greatest volu m e.1

S e c t io n a l P r ic e L e v e l s M u ch more ligh t can be throw n on the m ethod of operation of price changes in the adjustm en t o f trade balances b y com paring the different trends of the sectional price levels in Can ada. T h a t phase of the classical explanation of the m echanism of inter­ national trade w hich relates to the operation of price changes m ay be restated so as to m ake use of the considerations discussed above relatin g to sectional p rice levels,2 and w ith special applica­ tion to the C an adian situation, as follows: L e t us assume once more th a t w e begin w ith an equal balance betw een im ports and exports, and th a t C an ad a begins to borrow

1 Cf. Table L I, infra, presenting a comparison of the trend of prices of domestic commodities in C anada and in th e U nited States, which shows a substantially greater relative increase, throughout the period under study, in C anada than in 2 S ee p p . 209 s e q ., supra.

th e U n ite d S ta te s . .

TABLE X L

V III

W h o l e s a l e P r ic e s i n C a n a d a a n d t h e U n it e d S t a t e s 1

(135 identical articles) Year

19 0

Can ada

0

10 0 .0 .......................

19 0 1 190 2

10 0 .0

10 0 .8

9 9 .1

1 0 1 .9

10 3 -9

19 0

3

...............................................................

°2 -8

10 3 .3

19 0

4

' . -------

1 0 3 .6

10 2 .8

19 0 s ...................................................... ........................

1 0 7 .8

10 4 .5

19 0

6

1 10 .8

1 1 0 .8

19 0 7

1 1 6 .2

1 1 7 .6 IIO .O

19 0

i

8

...........................................

1 1 2 .7

. ............. ........................................

1 1 3 .6

1 1 3 .2

II

1 1 8 .0

19 0

9

19 1

0

19 1

1

191

2

rgi 1

U n ited States

* .................... 12 0 .0

1 1 8 .4 1 2 8 .0

3 ..............................................................................

Cost o f Living Report, v o l. ii, p.

7-5

168.

I

27-7

1 2 2 .6 ”

9-6

Unw eighted index fo r 13s identical commodities based on

prices given in the official price statistics of the two countries. Prices in 1900 = 100. T h e commodities are well distributed.

228

C A N A D A ’S B A L A N C E OF T R A D E

capital from abroad. There results an increase in bank deposits in Canada accompanied by an increase in the cash reserves. The increase in deposits will cause a rise in the prices of commodities produced for the domestic market, and of services. The prices of import commodities will not be appreciably influenced by changes in Canadian conditions, since they are governed by conditions in the producing countries and perhaps also in the important consuming markets, of which Canada, because of its small popu­ lation, generally is not a part. The relative rise in the prices of domestic commodities will not only make imported commodities which are different in kind from the domestic commodities more attractive to the purchaser, but may lead to a substitution, by consumers, of imported commodities for domestic commodities of the same kind, thus shifting these commodities from the domestic to the import class. A decrease in exports will result also. The increase in purchasing power in' Canada unaccompanied by an immediate increase in production will of itself result in the con­ sumption in Canada of a greater proportion of the supply of domestic commodities. Labor also will be withdrawn from in­ dustries producing for export, to the development of the enter­ prises for which the foreign capital was borrowed. The changes in sectional price levels will operate as a further check on exports. The prices of export commodities, except in the few cases where a great proportion of the world’s supply is produced in Canada, are mainly determined, proximately by the “ ruling market” in the consuming countries, ultimately by world-wide relations be­ tween supply and demand. The rise in the prices of domestic commodities and services raises the money cost of production of the export commodities. Where the producers succeed in raising their prices in sympathy with the rise in costs, it will lead to a diminution in exports, and even to the cessation of exports and the shift of the commodity from the export to the domestic class. Where the producers cannot raise their prices, they may after an interval of resistance to the price tendencies turn to other activities, and the commodity in extreme cases may even shift from the export to the import class.

M ECH AN ISM OF A D JU STM E N T

229

Domestic, Import, and Export Commodity Prices

Chart VIII presents an inductive verification of the reasoning given above. This chart shows that the rise in the prices of domestic commodities was most marked, that the prices of im­ port commodities, which are least subject to the influence of domestic conditions, rose least, and that the rise in the prices of export commodities, which are subject to both internal and exCHART V III I n d ic e s o f D o m e s t ic , I m p o r t , a n d

E xpo rt, W h o lesa le

1900-1913

-------- D om estic prices

--------Im p o rt prices

C o m m o d it y P r ic e s

................. E x p o rt prices

230

C A N A D A ’S B A L A N C E OF T R A D E

ternal influences, was intermediate between the rise in import prices and the rise in domestic prices. The differences in degree of rise between the three sectional price indices are great enough to make of the chart a clear and substantial verification of the deductive theory presented above. DATA I n d ic e s

of

D

o m e s t ic ,

Im po rt,

Year

OF and

CH ART E

xport,

D o m estic’

190 0 190 1 190 2

.....

V III W

h o lesale

C

o m m o d it y

P

r ic e s

Im port*

E xport*

100.0

100.0

92.5

102.8

100.0 111.5 118.5

94-8

xoi-7

190 3

“ 9-1

97-7

i o 3-3

190 190 190 190 190 190

119.1 120.9 122.8 135.6 133-6 141.0

94.0 983 107.3 114.2

104.0 107.9

99-5

“ 9-9

102.2

123.6

4 5 6 7 8 9

......... '. . . .

1

US-3

124.4

191 0

145-7

105.0

125.7

191 1 191 2

151.4 161.8

103.8 113.1

129.0 1388

191 3

161.7

114.1

133-9

’ Constructed by the w riter from price quotations in D ept, of Labour Reports on Wholesale Prices and in Cost of Living Report, v o l ii, pp. 250 seq. * Dom estic Com m odity P ric e s:— 23 commodities, as follows: h a y ; straw; fresh beef; mess pork; fresh eggs; m ilk ;

s a lt m ackerel;

strawberries;

beans; potatoes;

bread; sa lt; denim s;

ticking;

b itum inous coal (C ro w ’s N e st P a s s ); m atches; common building bricks; p u tty ; common kitchen ch a irs; d raught a le ; fow ls; apples; tom atoes.

T h e sharp rise in the first few years is d ue c h iefly to

the quotations for salt m ackerel and potatoes, both of which increased 75 per cen t o r over in price between 1900 an d 1903, and decreased in p ricc thereafter. * Im p o rt Com m odity P rices: — 30 commodities, as follows:

Raw materials:

corn; cotton ; silk;

rubber; a n th racite coal; Am erican b itum inous coal; C o nn cllsvillc coke; tin ; lead ; spelter; crude p etroleum ; iron, p ig; brass; copper. cu rran ts;

lemons;

Foodstufs:

molasses; oranges;

pepper;

bananas; chocolate; coffee, R io ; cream of tartar; prunes; raisins; rice;

sugar, gran ulated ;

sugar,

ye llo w ; tapioca; tea. T h e raw m aterials group is given tw ice as m uch w eight as the foodstuffs group in m aking up the to ta l im p ort com m odity index.

T h e official im p ort statistics du rin g th is period in­

dicate th a t the im ports o f ra w m aterials are approxim ately tw ice as much in v alu e as the imports of foodstuffs. T h is crude weighting does not su bsta n tia lly alte r the index. 4

E x p o rt C o m m od ity P rices: — 41 commodities, as follows: w h eat, M an ito b a n orthern, N o . 1;

b arley, O n tario, N o . 2; oats, C a n a d a western, N o . j ; h a y, N o . 1; ca ttle, western butchers; bacon; hides. N o . r ; calfskins; w hiskey, Can adian C lu b ; potatoes; ground woodpulp; flaxseed; newsprint; b ra n ; b inder tw ine; cheese, w estern; codfish, d r y ; canned salm on; canned lobster; apples, fresh; flour, M a n ito b a first; leather, N o . r special sole; flour, straight rollers; alum inum ; n ick el; silver, bar; copper; co a l, bitum inous, N o v a S c o tia ; pig iron. N o v a Sco tia; pig iron, Sum m erlee; spruce deals; la th s;

m uskrat; s k u n k ; gold; asbestos; rags; clover; pine lum ber, a ll grades; barley, Canadian

w estern, N o . 3; wool, O n ta rio , unwashed; shingles; h a libu t, fresh. exports are represented in th is index.

O ve r 90 per cen t of the Canadian

M E C H A N I S M OF A D J U S T M E N T

231

Export Prices

The export price index presented in Chart VIII was an un­ weighted index representing the great bulk of the exports in the later part of the period under study. With a view to finding out whether a study of export prices would reveal that restrictive in­ fluence on exports which, according to the deductive theory pre­ sented above, should result from a rise in domestic commodity prices relative to export commodity prices, there are presented in Chart IX for comparison with the unweighted export com­ modity price index two other indices of export commodity prices for the more important of the export commodities, one weighted according to the relative importance of the various commodities in the export trade at the beginning of the period under study, and the other similarly weighted according to the relative impor­ tance at the end of the period. If there was any substantial shifting of commodities from the export class to the domestic or the import classes because of the relative rise in domestic piices, this should show itself in a more pronounced rise in the index weighted according to the relative importance of the export commodities at the beginning of the period than in the index weighted according to the relative im­ portance of the commodities at the end of the period. In other words, the export trade should be expected to have maintained itself only through the substitution, for commodities whose prices rose in full sympathy with the rise in the domestic price level, of other commodities whose prices, either because of their more complete dependence on foreign markets or because of special circumstances moderating the rise in their cost of production such as the discovery of new low-cost resources, did not keep full pace with the rise in the domestic pricc level. The evidence presented in the chart offers a clear and sub­ stantial verification of this reasoning. The index weighted accord­ ing to the relative importance of the export commodities in 1900 to 1904 rises to a greater degree than the index weighted accord­ ing to the relative importance of the commodities in 1913. More­ over, the divergency of the two curves is especially marked in

232

C A N A D A ’S B A L A N C E OF T R A D E

CHART

IX

I n d ic e s o f E x p o r t P r ic e s , i 9 0 0 -19 13 -------- W eig h ted according to im portance in 1900-1904

-----------W eighted according to importance in 1913 ................ Unweighted

233 1906 and 1907, 1910-1913, years of marked accentuation in the rate of inflow of capital into Canada. It may be objected that the data presented in Chart IX show only one thing, namely: that foreign countries relatively in­ creased their purchases of those Canadian commodities which rose least in price and decreased their purchases of those which rose most in price, a result to be expected under any circum­ stances. If in all countries the prices of export commodities are governed wholly or even predominantly by internal conditions within those countries and especially by costs of production, this is a valid criticism. A rise in price, demand remaining the same, means a fall in sales. Whatever may be the normal situation, M E C H A N I S M OF A D J U S T M E N T

DATA OF CHA RT IX In d ic e s

o f E x p o r t P r ic e s 1

Year

W eig h ted accord­ in g to im portance in 1900-1904*

W eig h ted accord­ in g to im portance in 1913*

U nw eighted *

1 0 0 .0

1 9 0 0 .................................................................

1 0 0 .0

1 0 0 .0

1 9 0 1 .................................................................

1 0 1 .7

I O I .7

I O I .7

1 9 0 2 .................................................................

1 0 2 .1

97-9

10 2 .8

1903 ............................................................ J 9 °4 ............................................................

1 0 4 .6

9 9 .2

103-3

10 3 .0

10 3 .6

IO 4.0

* 9 0 5 ............................................................

IO 9 .9

1 0 7 .8

4-7

1 0 7 .9

1 9 0 6 .................................................................

1 0 7 .1

.....................................................■..

II 1 2 2 .2

5-9

1 2 2 .2

lr 1 1 8 .1

H 1 2 4 .4

1 9 0 8 ................................................................. 1 9 0 9 ............................................................ 1 9 1 0 .................................................................

1 2 6 .4

1 2 1 .7

1 2 3 .6

1 2 9 .2

19-3

1 2 6 .5

1 1 1 8 .8

1 2 5 .7

1 9 1 1 .................................................................

1907

1 9 1 2 .................................................................

1913 ............................................................

135-7 135-6

5-3

IX

9-9

12 9 .0

1 2 1 .7

13 8 .8

12 0 .2

133-9

1 These indices were constructed b y the w riter. 1 Weighted according to im portance in 1900-1904: — 3 1 most im portant commodities o f export in 1900-1904 sclcctcd from list g iven in note 4 to C h a rt V I I I , and roughly weighted according to their relative values in Canadian exports during these years b y: (1 ) d ivid in g them in to 3 groups of 3, 4, and 15 commodities, so th at each group represents an approxim ately equal valu e of exports, and (s ) constructing an index for each group, and (3 ) tak in g an average of the three indices. * W eighted according to im portance in 1913: — 3 3 most im portant articles of export in 1913, roughly weighted according to th eir relative value in Canadian exports in th at y ear. method of weighting, see note 3 , above. * A s in note 4, C h art V I I I .

F o r general

234

C A N A D A 'S B A L A N C E O F T R A D E

however, these are not the conditions governing export prices in Canada. The Canadian surpluses for export of the commodities that she produces are, with the exception only of two or three mineral products, but small fractions of the world’s supply of these com­ modities. Their world prices, therefore, are not influenced appre­ ciably by Canadian conditions. So long as Canadian producers wish to maintain their export thereof, they must passively accept the world prices. Those commodities which advance most in price in the world, markets should become, other things being equal, the most profitable to produce for export, and should consequently become a larger instead of a smaller proportion of the total ex­ ports. But the reverse was true in so far as Canadian prices were concerned. It was the commodities whose prices rose least whose exportation increased most. This proves conclusively the prop­ osition made above: the relative rise in prices of the commod­ ities important in the export trade in the early part of the period was due predominantly to Canadian conditions, and was not simply a reflection of conditions in the world market. The factors incident to great capital borrowings operated to break the normal relationship between the trends of prices of export com­ modities in Canada and in the world markets, and thus tended to restrict export trade.1 Import Prices

It has already been shown that the price index for import commodities rose least of all as compared with the other sectional price levels and with the general price levels. Chart X and Tables XLIX and L throw further light on the trend of import com­ modity prices. Chart X presents the price indices for imported foodstuffs and for imported raw materials from which the index for all imported commodities in Chart VIII was constructed. Although, as is to be expected, they show wider fluctuations in prices than did the total import price index, in general their trend is the same and they both appear to reflect the same price influences. 1 Sec p. 261 seq., infra, for further discussion of exports and export prices.

235

M ECH AN ISM OF A D JU STM E N T

A considerable part of the Canadian imports consists of manu­ factured products, especially iron and steel products from the United States and textiles from Great Britain. The Canadian official price statistics do not permit of the construction of indices for such commodities with any degree of assurance that domestic commodities are not being included. The United States Depart­ ment of Labor index for manufactured commodities is included in Chart X, as roughly representative of the trend of prices in such imports from the United States. There is unfortunately no CHART X In d ic e s

o f

P r ic e s

of

Im p o r t

C o m m o d itie s a n d

o f

a ll

C o m m o d itie s ,

1900-1913 -------- Im p orted foodstuffs --------Im p orted raw m aterials

-------U n ited S ta te s m anufactures .............

A ll commodities

236

C A N A D A ’S B A L A N C E OF T R A D E

satisfactory British index for manufactured textile products. It is to be noted that all the import price indices presented in this chart show a less pronounced rise than does the Canadian un­ weighted index for all commodities, thus further confirming the reasoning presented above. Table XLIX compares an index of all foodstuffs for which Canadian official price statistics are published, with an index for imported foodstuffs. The index for all foodstuffs shows a much greater rise in price than the index for imported foodstuffs, in­ dicating once more that the domestic commodity price level rose more than did the import commodity price level. Table L,which makes a similar comparison, but only for the years from 1907 to 1913, of the price trend of all raw materials in Canada with the price trend of imported raw materials, shows that there was a greater rise in domestic commodity' prices than in import commodity prices. DATA O F C H A R T X I n d ic e s

o f

P r ic e s

o f

I m po rt

C o m m o d it ie s a n d

o f

a l l

C o m m o d it ie s

Year

Im p o rte d foo dstu ffs1

Im p o rte d raw m aterials 5

U n ite d States m a n u factu res3

A ll commod­ ities *

1 9 0 0 ......................................................... 1 9 0 1 ......................................................... 1 9 0 2 .........................................................

IOO.O

100.0

100.0

100.0

9 1 .7

9 6 .5 IO I.2

1903 .................................... 1904 .................................... I 90 S ...........................................

IO O .9 9 2 .6 9 2 .2 9 2 .2

95-4

1 9 0 6 .........................................................

9 9 .2

1907 .......................’..................

1 0 5 .7

1 9 0 8 .........................................................

1909 ....................................

1 9 1 0 ......................................... 1 9 1 1 ......................................... 1 9 1 2 .........................................

1913 ....................................

> Constructed b y the w rite r.

10 1.6

9 8 .6 1 0 1 .6 h i .4 1 1 6 .2 1 1 2 .0

9 2 .5 1 0 0 .4 9 4 .9 9 9 .8

I0 I.2 I0 I.2

I O 4 .7 1 0 7 .0 I I 4 .0 1 0 8 .1

1 1 1 .3 1 1 8 .5 9 8 .4 1 0 4 .0 1 0 6 .7

1 1 5 -1 1 1 8 .6 1 1 4 .0 1 1 8 .6

100.0

1 1 1 .5 1 1 5 .1

1 1 7 .4

Im p orte d Foodstuffs: — 16 commodities.

9 8 .8 IO O .7 1 0 2 .1 1 0 2 .0 I O 5 .I I I O .9 I l6 .6 h i

.6

1 1 2 .0 1 1 4 .7 1 1 6 .8 1 2 4 .2 1 2 4 .8

(Listed in note 3 to Chart

v rn .) * Constructed b y the w riter.

Im ported R a w M ate ria ls: — 14 commodities.

(L is te d in note 3 to

C h a rt V I I I . ) * U n ited State s M an u factu red Com m odities: — U . S . D e p t, of L a b o r, Bu re au of La b o r Statistics, weighted. Converted to 1900 base from 1914 base b y writer. N o . 181, p. 25.) T h e method

{Bulletin

of construction of this c h a rt perm its shifting of base w ithout error. * A ll Com m odities, unweighted: — see note 1 to C h a rt IV .

237

M E C H A N I S M OF A D J U S T M E N T

T A B LE X L IX I n d ic e s

o f

W h o lesa le

P r ic e s

o f

a ll

F o o d stu ffs

and

I m po rted

F o o d stu ffs Y ear

190 190 190 190 190 190 190 190 190 190 191 191 191 191

A ll foodstuffs1

Im p orted foodstuffs»

100.0 106.9 107.5 106.3 107.8 110.4

100.0 100.9

125.7 125.2 130.8

105.7 101.6 98.6 101.6 111.4 6.2 112.0

0 1 2 3 4 5 6 7 8 9 0 1 2 3

92-6

92-2 92.2

95-4 99-2

115*3 135-2 134-6 149-3

”

145-2

TABLE L I n d ic e s

o f

W h o lesa le

P r ic e s R aw

"Y ea r

190 190 190 190 190 190 190 190 190 190 191 191 191 191

0 1 2 3 4 5 6 7 8 9 0 1 2 3

o f

a ll

R aw

M a t e r ia l s

and

I m po rted

M a t e r ia l s A ll ra w m aterials >

Im p orte d raw m aterials*

100.0

%................................................... .

95-8 94-5 J 02.5 97-7 102.1

II3-3 117 .° 97-3

...................; ........................... 117-0

103.0 104.0 98.1 111.9 113.4

......................................... 122.7 129.5 127.1

1 A l l Foodstuffs: — 100 commodities. Constructed b y the w riter from D e p t, of La b o u r indices for 5 groups of foodstuffs b y averaging the indices of the groups and then reconverting from 1890-1899 to 1900 base. T h a t the statistical error arising from both (1 ) the weighting resulting from the use of group averages and (2 ) the conversion to a different base is n o t im p ortant is evidenced b y the fa ct th at a n unweighted index constructed b y C o ats from quotations for the same 100 articles w ith 1897 as a base shows an increase in the 1913 index o ver the 1909 index of 9-3% as compared w ith 1 1 .0 % in the present index.

{Cost of Living Report, v o l. ii, p. 30.)

1 Im p orte d Foodstuffs: — sec note 1 to C h a r t X . * A ll R a w M a te ria ls: — 89 commodities. 1907 = 117.0. Converted b y w riter from C o ats’s Index based o n ayerage prices 1890-1899. Indices n o t availa b le for years not given . •Imported R a w M a te ria ls: — see note 2 to C h a rt X .

( Ibid

., p. 31.)

23 B

C A N A D A ’S B A L A N C E OF T R A D E

Domestic Commodity Prices

There remains for special consideration, of the sectional com­ modity price levels, only the prices of domestic commodities, namely those which do not enter in significant amounts into either export or import trade. The domestic commodity price index presented in Chart VIII showed a much greater rise than the other commodity price indices, and the greater rise of do­ mestic prices was reflected also by subsequent charts already discussed above. The price quotations available for use in the construction of the domestic commodity price index were un­ fortunately few in number and restricted in the range of com­ modities represented. Commodities which would be domestic commodities in most countries are in many cases export or import commodities or both in Canada, because the transpor­ tation costs to a market in the United States from a producing region in Canada or vice versa are often less than the transporta­ tion costs between Canadian producing region and Canadian market. In the absence of tariff restrictions, and to some extent in spite of these restrictions, there are phases of the Canadian commerce with the United States which exhibit more fully the characteristics of domestic trade than does the trade between different sections of Canada. Differences between Canada and the United States in fashion, habit, industrial methods, are not sufficient to result in national differentiation and localization of commodities. In many cases even highly perishable com­ modities such as fresh milk, fresh eggs, strawberries, cross the national boundary in substantial quantities. Three of the prop­ erties of domestic commodities, bulkiness, perishability, and adaptation to local modes and fashions,1 are often not sufficient 1 Cf. Professor Taussig: “ W hat will be the range of prices for those commodi­ ties which do not enter into the sphere of international trade — those which are not exported or im ported, b ut are bought and sold' solely w ithin the country? The q uan tity of such commodities is very great, and in all countries probably much exceeds th at of commodities having a world range of prices. M any things are too bulky to be transported over any considerable distance — as stone, bricks, timber. M any are perishable, as milk, butter, eggs, fruits, vegetables. No doubt modem im provem ents in the transportation of bulky goods and in the preservation of those th a t are perishable tend to enlarge the sphere of foreign trade. B ut such

M E C H A N I S M OF A D J U S T M E N T

239

to prevent trade between the United States and Canada in com­ modities having such characteristics. It is probable that in Canada those commodities come nearest to being domestic in character, in the sense of the term used here, which are pro­ duced in Canada under the shelter of higher tariff protection than they need, even though these commodities are typically neither perishable nor especially bulky. The domestic commodity price index presented above must be supported, therefore, by further evidence before it can be accepted as a reliable index of the trend of that part of the Canadian price level which was not directly subject to the influence of foreign prices. The prices of individual commodities cannot by themselves be accepted as important evidence of general price trends, because they may have been subject to particular factors more powerful for the commodities in question than the general forces operating on the general price levels. Nevertheless, the following details are presented for what they are worth as additions to the accumula­ tion of evidence. Bricks are one of the commodities listed by Professor Taussig in the class of domestic commodities, and common buildingbricks are represented in the domestic commodity price index given in Chart VIII. The price index for bricks first found showed a very moderate rise from 1900 to 1913. Further examination showed that it was constructed from the price-quotations for things are still sold m ainly in their own region and a t the prices of their own region. . . . Some of the articles used in building houses — boards and laths, doors and windows, locks and hinges — m ay indeed be sent to d istant regions. B ut even these are much affected by the customs and fashions of the several countries, and are usually made and sold on the spot or near it. A m ultitude of articles which might conceivably be brought from foreign countries are in fact made chiefly a t home, because of the persistent sway of habit and tradition. Such are clothing and boots, tools and machines, wagons and harness. T he reader’s imagination will easily enlarge the list. T he prices of all these things are determ ined under domestic conditions. T hey do n ot enter into international trade, and have no world level of prices.” (Free Trade, the Tariff, and Reciprocity, pp. 73, 74.) U nfortunately for the ease of this study, the situation is n ot nearly so simple in so far as Canada is concerned. F or C anada, the reader’s imagination m ust be directed to reducing instead of enlarging the list given by Professor Taussig. T he Canadian boundary line represents little obstruction to trade other than th a t aris­ ing from im port duties, and little difference in habits and fashions.

240

C A N A D A 'S B A L A N C E O F T R A D E

both building-bricks, a domestic commodity, and fire-bricks, less bulky in proportion to their value and largely imported. From 1900 to 1913, common building-bricks advanced 57 per cent in price, fire-bricks fell 9 per cent in price. There are no official price quotations for sand and gravel, which are probably the cheapest articles of commerce in proportion to their bulk. They must, therefore, be primarily domestic com­ modities. If they are exported from Canada, it can only be a frontier trade which reflects local and not national price condi­ tions. The Canadian export statistics for quantities and values indicate a rise, from 1905 to 1913, in the price per ton from 48.5 cents to 71 cents, or 46 per cent. Table LI presents a comparison of the index for domestic com­ modities in Canada, as presented in Chart VIII,. with an index constructed from price quotations in the United States for the identical or closely similar articles. T A B LE LI I n d ic e s o f

C a n a d ia n

and

A m e r ic a n

P r ic e s

o f

C a n a d ia n

D o m e s t ic

C o m m o d it ie s

Y ear

190 190 190 190 190 190 190

0 1 2 3 4 5 6

190 7

190 190 191 191 191 191

8 9 0 1 2 3

C anada >

....100.0 ...111.5 ................... ...118.5 ....119.1 ...119.1 ....120.9 ....122.8 ..... 135-6 ....133.6 ...141.0 ...................145-7 ....I5I-4 ....161.8 ....161.7

1 Sec note 2 to C h a rt V I I I . ! Constructed b y the w rite r from price quotations for the U . S . in pp. 350 seq.

U nited S tates *

ioo.o 101.5 106.0 105.8 108.5 102.7 109-5 “ 2.1 110.1 115.8 118.1 122.3 130.5 123.0

Cost 0/ Living Report, vol. ii.

Com m odities included same as in Can adian index, b u t w ith the following omissions be­

cause of lack of q uotations: s tra w , strawberries, draught a le, fow ls, apples, tomatoes.

O f these six

com m odities in th e C an ad ian index, the rise in price from 1900 to 1913 w a s greater th an th e average rise for other dom estic com m odities for s tra w , fowls, and tomatoes, eq ual to the average rise fo r apples, less th a n th e average rise for strawberries, w h ile draught a le fell absolutely in price from 1900 to 19T3. N o appreciable change in th e C an ad ian index would result from th e omission therefrom of these com modities.

M EC H AN ISM OF A D JU S TM E N T

241

The divergence between the two indices in the above table is much more marked than in any of the previous comparisons of Canadian and American prices.1 The great relative rise in do­ mestic prices in Canada cannot be attributed, therefore, to world influences affecting particularly the class of commodities in­ cluded in the domestic price index. Prices of Services

Since in Canada almost any commodity which is movable may enter into foreign trade, the prices of services, which have no greater mobility than that of the persons rendering them, are especially important evidence as to the trend of domestic prices. In Chart XI, indices reflecting the trend of prices of four impor­ tant classes of services, hospital services, house rents, business rents, and wages, are compared w'ith the general commodity price index. The index for the average cost per hospital patient per day reflects a whole range of prices of commodities and services belonging to the domestic class which are not adequately repre­ sented in any commodity price indices.2 House and business rents are not only important per se,3but they reflect the trend of prices of immovables, land and buildings, important commodi­ ties, wholly “ domestic” in character, which do not enter into the ordinary commodity price index. The trend of rates of wages should reflect ail of the price factors which are domestic in character, and especially retail prices, a separate analysis of which was not feasible because of the absence of comprehensive data. 1 See supra, pp. 223 seq. 2 “ An obvious purpose of such an inquiry into costs of hospital services is to measure fluctuations in the prices of yet another ‘necessary,’ namely, skilled care during severe illness. A second object was to throw a sidelight on the field of per­ sonal and household expenditures, through an exam ination of the m aintenance costs of public institutions. In the absence of fam ily budgets, such costs offer perhaps the best evidence of how the advancing prices of the past few years have worked out-in a practical way.” (Cost of Living Report, vol. ii, p. 342.) 3 "House-room and shelter, a m ost im portant article of consumption and p ur­ chase, cannot be transported a t all, and so m ay vary widely in price in different countries.” (F. W . Taussig, Free Trade, the Tariff, and Reciprocity, pp. 73, 74.)

242

C A N A D A ’S B A L A N C E OF T R A D E

CHART X I I n d ic e s

o f

--------A ll com m odities

S e r v ic e s

an d

o f

C o m m o d it ie s

a ll

--------W e e k ly wages

------- House rents

.............. H o sp ital services

--------Business rents

In d e x

/

No.

/

225

/ / /

0

SO

/ / 175 /

/ » / '

»

/ '

150

/

/ /

/

/ 1Z

5

s'

/

. /

y

/ /

y ..-

/

/

y

l’" '

/

/ 100 o o o-

JU o

ct-

to q-

CD o

ct~

eo o cr-

o — CT-

O/ — 37-8

100.0

100.0

119.0

129.4

100.0 IOI.6 103.8 106.5 109.3 I I 3-I 116.5

1 0 2.0

105.1 110.9 1 1 6 .6 h i

.6

112.0 114.7 1 1 6 .8

124.2 124.8

144-7

1 2 2 .6

135-4 ^ 140.7 143-2 rS3-7 162.0

234-5

1 A ll Com m odities, unweighted: — see note 1 to C h a rt I V . * H o sp ital Services: — average cost per p a tie n t d a ily .

Rcfor!, vol. i i , pp. 342 seq.) based on return s from

Index constructed b y C o ats

131 hospitals.

124.8 129.0 134-0 137-9 145-0 148.9 (.Cost of Living

—

1 House R e n ts : — ty p ic a l six-roomed d w ellin g in workingm en’s quarter, w ith sa nita ry con­ veniences. ents of the

Index constructed b y C o ats

Canada Labor Gazette

(ibid., p. 370 ) . based

throughout C an ada.

on o riginal statistics from correspond­

A sim ilar index based on original statistics

(ibid.). A weighted index (ibid.. p. 377). (a) typ ica l store in first-class business section; ( b) typ ica l store in second-class business section; (c) typ ica l down-town office. T h ree indices con­ structed b y C o ats (Cost o f Living Report, v o l. ii, p. 378) and averaged b y w riter. W eigh ted indices based on the sam e d ata show much greater increases (ibid., p. 376). collected from real estate agents shows an even more pronounced rise based on the same d ata also shows a greater rise

* Business R e n ts : — average of three indices for

s W e e k ly W a g es: — constructed “ on a w ee kly basis so as to m ake allowance for current change in hours and thus to reflect net earning ca p a city.”

(Ibid.. p. 427.) A s there was a steady downward (ibid., p. 431), this index minimizes the ex­

trend during th is period in the length of the w orking d a y tent of the increase in rates of wages per hour.

rates of wages.

I t is an index not o f a ctu a l earnings b u t of w eekly

I t is based "o n a series of over 1000 continuous and reliable records back to 1900, picked

over the a va ila b le field w ith the sole purpose of rendering the final result as representative as possible”

(ibid., p. 431).

T h e index is weighted according to the relative im portance o f the occupations for

which wage quotations were used.

(See p. 248,

infra.)

C A N A D A ’S B A L A N C E OF T R A D E

244

In Chart XII, on the other hand, are presented five indices for the prices of as many important classes of services; these indices not only show in every case a relative decline as compared to the general commodity price index, but they show in every case but one, the index for passenger fares, an absolute decline. The rise shown by the index for passenger rates is much more moder­ ate than the rise in the general commodity price index. The C H A R T X II P u b l i c U t i l i t y C h a r g e s , 19 0 0 -19 13 —

W a te r service

—

E le c tr ic lig h t

............... Illu m in a tin g gas

--------Passenger rates --------Fre ig h t rates

245

M E C H A N I S M OF A D J U S T M E N T

failure of the prices of these services to move in sympathy with the general upward trend of prices is due to the special circum­ stances governing both the costs of rendering the services and the determination of their prices. All of these indices are for serv­ ices which are rendered either by municipal plants, or by public utilities whose charges are regulated by their franchises, by statute, or by public commissions. Improvements in methods of production and operation and the increase in population have lowered the cost per unit of service in many cases. In some cases the services have been sold with little regard to their cost. These DATA O F C H A R T X II P o b l ic

Year

W a te r s e r v ic e

1900.................................. 1901.................................. 1902.................................. 1903 ................................ 1904................................ 19°S- • • •'......................... 1906.................................. 1907 ..................................... 1908................................. >9°9.................................. 1910.................................. 1911.................................. 1912.................................. I9I3 ..................................

100.0 100.0

1 Coats’s In d e x : — * *

Ibid., pp. 317 seq. Ibid., pp. 327 seq.

* Canadian

99-3 98.6 97.2 97.1 96.5 97-7 96.9 98.4 98.0 96.7 96.2 95-6

1

U t il it y

E le c t r ic lig h t*

Illu m in atin g g a s*

Passenger r a te s •

Fre ig h t r u le s 4

100.0

100.0

100.0

100.0

100.0 100.0 100.0

98S 97-4 97-5 97.2 95-9 93-9 92.1 90.5

99.O 94.O 84.O 85.O 84.O 82.O

8 8 .6

83-5 80.2 77.r 70.7

Cost of Living Report, v o l.

Pacific R a ilw a y ,

C h arg es

8 l. O

77.O 78.O 77.O

90.7 89.6 94.8 95-3 95-3 94.8 97-9 97-4 94.8 100.0 101.6 103.1

106.2

94.9 93-7 97-5 96.2 93-7 97-5 94.9 96.2 97-5 102.5 97-5 97-5 94.9

ii, pp. 307 seq.

Annual Reports: C.

P . R . average gross earnings per passenger per

mile, fiscal years beginning J u l y 1. T h e official ra ilw a y statistics for a ll railw ays in C anada, available since 1907, show an increase in average earnings per passenger per m ile from 1907 to I9 t3 o f 3.2 per cent, as compared w ith 12 per cent according to the C . P . R . data for the same period. Dept, of R a ilw a y s and C anals, 5

(C an a d a :

Railway Statistics, 1907-1913.) Annual Reports: C . P . R . average gross earnings per ton m ile, fiscal

Canadian Pacific R a ilw a y ,

years beginning J u l y r.

Coats from a stud y of the freight tariffs of 1900-1904 and 1914 found a de­

crease in rates of from 5 to 6 per cent from 1900 to t9i4-

(

Cost o f Living Report, vol. ii, p. 337.)

T h e official ra ilw a y statistics for a ll railw ays in C an ada available since 1907 show a decrease in average earnings p er ton m ile from 1907 to 1913 of 8.2 per cent, as compared w ith no change according to the C. P . R . data for the same years. r 907-1913.)

(C an a d a : D e p t, of R a ilw a y s and C anals,

Railway Statistics,

246

C A N A D A ’S B A L A N C E OF T R A D E

C H A R T X III I n d ic e s

of

W

eekly

W U

ages

n it e d

------------- C anada, w eighted --------------C anada, unw eighted

in

C

anada,

G

reat

B

r it a in

,

and

S t a t e s , 19 0 0 -19 13

.................. G reat B ritain ------------- U nited States

th e

247

M E C H A N I S M OF A D J U S T M E N T

indices do not, therefore, discredit the results of the preceding price-studies. They reflect special conditions which have made the prices of certain kinds of services, if not always their costs, move in a counter direction to the general trend. The trend of wages, if allowance be made for the probability that wages will show' considerable inflexibility during periods of fluctuation in general price levels, offers perhaps the best single index of the trend of domestic prices in general. The course of domestic price levels in different countries can be indirectly compared, therefore, by comparing the trends of wage levels. In Chart XIII a comparison is presented of wage indices for Canada, Great Britain, and the United States. These indices are not similar enough in their methods of construction to be altogether comparable, but there is no apparent reason for DATA O F C H A R T X III I n d ic e s

of

W

eekly

W

ages

U

in

C

n it e d

anada,

G

reat

B

r it a in

,

and

th e

States

Canada Year W eig h ted

1

G re a t B r it a in J

U n ited S ta te s *

U n w e ig h te d '

1 9 0 0 .............................................

1 0 0 .0

1 0 0 .0

1 0 0 .0

10 0 .0

1 9 0 1 ..............................................

IO I .6

10 2 .0

9 9 .I

1 0 1 .7

1 9 0 2 ..............................................

10 3 .8

IO 4 .3

9 7 .8

9 °3 ..............................................

1 0 6 .X

97.2

105-7

10 6 .5

1 9 0 4 ..........................................

10 9 .3

1 0 8 .8

9 6 .7

1 0 8 .1

1 9 0 5 .......................................... 1 9 0 6 .............................................

I I -I

h i

.6

97.O

III

1 1 6 .5

4-5

9 8 .4

1 1 4 .2

1 0 1 .8

I I 9 .2

J

3

10 8 .2

.2

1 9 0 7 ...........................................

1 2 2 .6

H 1 1 9 .2

19 0 8 ..............................................

1 2 4 .8

1 2 1 .1

1 0 1 .2

1 1 7 .6

I2 9 .O

1 2 5 .4

10 0 .0

I I

1 2 9 .7

10 0 .3

8.8 1 2 1 .8

10 0 .5

12 3 -3

9 °9

J .............................................. 1 9 1 0 .............................................. 1 9 1 1 ..............................................

134-0 137-9

1 9 1 2 ..............................................

1 4 5 .0

33 -I 139-3

1 9 1 3 ..........................................

14 8 .9

1 4 2 .9

I

10 3 .0

127-5

infra.

1 W e e k ly W ages in C a n a d a : — see note 5 to C h a rt X I , and p. 348, G re a t B r ita in : La b o u r D e p t., B o a rd of T rad e , unweighted.

1 W e e k ly W ages in G re a t B r ita in : — (Cost of Living Report, v o l. ii, p . 558.)

* W e e k ly W ages in U n ited S ta te s : — I . M . R u b in o w ’s index com puted from statistics collcctcd and published b y U n ited Sta te s , D e p t, of L a b o r, B u re au of La b o r Sta tistics.

(Ibid., p . 565.)

248

C A N A D A 'S B A L A N C E O F T R A D E

doubting that they reflect closely enough for the present purpose the actual course of wages and of domestic prices in general in the three countries. For Canada a weighted and an unweighted index, both constructed by Coats, are presented. The weighting was crudely done, but the great differences in the relative im­ portance of the occupational groups for which wage quotations were used in constructing the index make it the preferable one to use even for comparison with the unweighted indices for wages in Great Britain and the United States.1 The chart shows a much more pronounced rise in wages in Canada than in Great Britain. Wages in Canada and in the United States ran closely together until 1907, after which they increased to a much greater degree in Canada than in the United States. It will be remembered that the great flow of capital into Canada began in 1907. This chart supplies further confirmation, therefore, of the explanation offered in this and the preceding chapter, of the operation of variations in price levels in the adjust­ ment of the Canadian trade balance to borrowings from abroad. C o a t s ' s E x p l a n a t io n o f t h e R e l a t iv e R is e C a n a d ia n P r ic e s

in

Mr. R. H. Coats, the Dominion Statistician, has offered an explanation of the relatively greater rise in Canadian than in world prices, which differs from and is somewhat inimical to that offered here.2 He claims that an investigation of price trends in different countries shows that the rise from 1900 to 1913 was greatest in those countries in which industrial expansion was taking place at the most rapid rate, and especially in those coun­ tries in which this expansion took the form of the increase of primary plant and equipment, such as (x) the opening-up of new territory to settlement, with its attendant railway construction, 1 Coats weighted his index on the basis of census returns of wage-earners by occupations. T he necessity for weighting is indicated by the fact th a t the weights used ranged from 20 for agricultural workers arid 20 for dom estic servants to i for municipal employees and i for brewery and distillery workers. (Cost o f Living Report, vol. ii, p. 431.) 2 Cost o f Living Report: Synopsis o f Exhibit by the Statistical Branch, Department of Labour, pp. 15 seq.

M ECH AN ISM OF A D JU STM E N T

249

road-making and town building, and (2) “ industrialization,” or the process of transformation of an “ agrarstaat” into an “industriestaat.” He explains the greater rise in prices in these countries by the fact that a period of considerable duration elapses before expansion of this sort results in increased pro­ duction. During this interval the supply of commodities and of labor does not keep pace with the demand, and prices there­ fore rise. If expansion of this sort in a given country was financed from domestic savings, it would simply mean, however, that those having purchasing power were voluntarily shifting their demand from consumers’ goods to producers’ goods and from labor en­ gaged in producing consumers’ goods to labor engaged in indus­ trial development. What might be expected to happen would be that producers’ goods would rise and consumers’ goods would fall in price. The general price level should not be affected by this change in the character of the demand. On the other hand, if the expansion was financed by borrowings from abroad, there would still be available the normal supply of consumers’ goods, the extra supply of goods and labor necessary for the industrial development being provided directly or indirectly by the lending country. In so far as the industrial expansion per se was con­ cerned, there would again be no obvious reason why prices should rise more rapidly in this than in other countries, and there would even be some reason for expecting a relative fall in prices. It unquestionably was true that in general the countries in which industrial expansion was taking place at the most rapid rate were also the countries in which prices were rising at the most rapid rate. But these were also the countries which were bor­ rowing capital from abroad in the greatest volume, notably Canada, the Argentine, Australia, New Zealand, Japan, the United States. It is not proved, therefore, that it was the in­ dustrial expansion per se rather than the borrowings from abroad which made prices rise more in these countries than in the older European countries: Capital borrowings and industrial expan­ sion are not unconnected. Capital is usually borrowed for pur­ poses of industrial expansion. There is no reason to suppose that

250

C A N A D A 'S B A L A N C E OF T R A D E

prices would have been less buoyant in the borrowing countries if the loans made to them had been “ spendthrift loans.” Coats supports his theory with further evidence. He argues that the process of industrialization involves, at least during its earlier stages, the diversion of labor from the production of food to the production of plant and equipment. He then claims, on the basis of price statistics: that the rise in the prices of materials has been much the same the world over; that the rise in the prices of foods has shown much greater divergence in different countries; and that the relative rise in prices in the countries with the most buoyant prices has been essentially a rise in food prices. Since the countries with the most buoyant prices were also the countries in which industrialization was proceeding at the most rapid rate, he again claims to demonstrate the existence of a causal relationship between industrialization and relative rises in price levels. The greater rise in the prices of foods than in the prices of ma­ terials in the capital-borrowing countries can be adequately ex­ plained, however, in accordance with the theory presented here, and without reference to industrialization. As Coats himself points out: “ Materials are obtained as a rule over wider areas than foods; they lend themselves more readily to transportation, and their prices tend to move together as between country and country to an extent that is not true of foods, many of which are necessarily drawn from nearby sources.” 1 In the language of this study, materials are typically interna­ tional commodities, foods are typically domestic commodities. The trend of prices of materials should not differ greatly from country to country. In capital-borrowing countries the prices of foods should rise more rapidly than the prices of materials. If some factor not directly connected with capital borrowings was operating in any case to make the prices of foods rise throughout the world relatively to materials, the relative rise in foods should be further accentuated in capital-borrowing countries. On the other hand, in capital-lending countries, if no other important factor were operating, foods should not rise as rapidly as mate1 Cost o f L ia n g Report: Synopsis of Exhibit by the Statistical Branch, Department of Labour, pp. 20, 21.

251

M E C H A N I S M OF A D J U S T M E N T

CH ART

X IV

C a p it a l B o r r o w in g s a n d D iv e r g e n c y

b e t w e e n

D o m e s tic

a n d

Im p o rt

P r ic e L e v e ls , 19 0 0 -19 13 -------- R a tio o f dom estic to im port price level ............. C a p ita l borrowings, indirect estim ate ----- —

MILLIONS DOLLARS 500

C a p ita l borrowings, d irect estim ate

1

!

1

/ / /

400 300

/

200

/ -----

100

f!

-

--- ✓

/

// //

/

/

f.

/

252

C A N A D A 'S B A L A N C E OF T R A D E

rials; if industrialization was causing a world-wide rise in foods relative to materials, this factor should be wholly or partly off­ set by the counter-influence on the prices of domestic commod­ ities of the export of capital. The statistical evidence which Coats himself presents con­ firms the present reasoning more closely than his own. In Canada, a capital-borrowing country, the increase in prices from 1900 to 1913 was 39 per cent for foods, 21 per cent for materials.1 In Great Britain, a capital-lending country, the increase in prices from 1900 to 1913 was 12 per cent for foods, 14 per cent for mate­ rials.2 In the United States, which was borrowing capital from abroad but in relatively much smaller volume than Canada, the 1 Cost of Living'Report: Synopsis of Exhibit, p. 21.

2 Ibid., p. 22.

DATA O F C H A R T X IV C a p it a l B

o r r o w in g s

and

D

iv e r g e n c y

I m port P

Year

IQ O O

...................................................

1901...................................................... 1902...................................................... 1903 ......................................................................... 1904 ............................................................ I 905- ■ •••.......................................................... 1906...................................................... 1907 .......... • ................................................ 1908...................................................... I 9 ° 9 ' ......................................................................

1910...................................................... 1911...................................................... 1912......................................................

1 9 1 3 ............................................................

■

r ic e

L

R a tio of domestic to im p ort price le v e l1

Per cent

100.0 120.2 117-4 112.9 119.4 118.5

betw een

In d ire c t es tim a te 2

13 1-9

and

D ire c t estim ate *

Millions of dollars Millions of dollars

34

SO

31 52 112 99 99 161 224

109.7 127.6 128.3 129.0 1339

o m e s t ic

C a p ita l borrowings

JIO .I

129.4

D

evels

193

225 358

435 433

32 37 42 55 62 112 105 95

222

253 313

348

321 547

R a tio of Dom estic to Im p o rt Price L e v e l: — domestic price level index constructed from indices

for domestic prices used in this chapter w ith following weights: domestic com m odity prices, 4 ; wages, 3 ; hospital services, 2; public u t ility services, j ; house rents, 2. Im p o rt price level as in C h a rt V I I I . A series o f link relatives was then computed in w hich the im port price index for each ye a r was made the base for th at year, and the domestic price index the variable relative. 2 C ap ital Borrowings, indirect estim ate: — T a b ic X X V I I I , p. 101,

supra.

3 C ap ital Borrowings, direct estim ate: — T a b le X L I V , p. 139, supra.

M ECH AN ISM OF A D JU S T M E N T

253

increase in prices from 1900 to 1913 was 34 per cent for foods, 17 per cent for materials,1 the rise in each case being intermediate between the rises occurring in Great Britain and Canada respec­ tively. A relative rise in the prices of foods, typically domestic commodities, in Canada and the United States, capital-borrowing countries, contrasted with a relative fall in the prices of foods in Great Britain, a capital-lending country. Sum m ary

As a final inductive test of the reasoning presented in this and the preceding chapter, total indices of the course of domestic prices were computed from the partial indices already presented in this chapter, and the divergencies of the domestic from the import prices were measured by the use of link relatives. The results are presented in Chart XIV. The stimulus to an excess of imports over exports resulting from variations in price levels should be roughly measurable by the divergency between the domestic and import price levels. With some qualification to be made for the progressive effect on trade -for some time, of a given divergence in price levels, and also for the greater absolute effect on trade of a given divergency in prices when the volume of trade in general has increased, the divergency between domestic and import price levels should in­ crease with every increase, and decrease with every decrease, in the rate of borrowings.2 If allowance is made for probable error in the estimates of the volume of capital borrowings and for the incompletely repre­ sentative character of the price indices available, Chart XIV adequately substantiates the reasoning presented here. As the rate of borrowings increased, the divergency between domestic and import price levels widened. For the first four years, marked variations in the prices of the particular commodities entering into the indices, and a rate of borrowing too small to exert a dis­ tinguishable influence on the trend of prices, make inductive inference of questionable value. Marked relative increases in 1 Cost o j

Living Report: Synopsis o j Exhibit,

p. 23.

-

See p. 213, supra.

254

C A N A D A 'S B A L A N C E OF T R A D E

the rate of borrowing as compared to preceding years occurred in the years 1904, 1907, 1908, and 1911, according to the indirect estimates. In each of these years except 1907 there was a sub­ stantial widening of the divergency between domestic and import prices. According to the direct estimates, the rate of borrowings decreased in 1907, and the greatest relative increase in borrow­ ings occurred in 1908, when there was also the greatest relative increase in the divergency between domestic and import prices. In 1912 and 1913, borrowings at the peak were accompanied by a divergency in prices very near, but not quite at, the peak, pos­ sibly because of the progressive effect of the divergency which made its appearance in the preceding years'. Excluding the first four years, there was not a single case in which a substantial widening of the divergency in prices was not contemporaneous with a substantial increase in the rate of borrowings. In general, however, the curve of divergencies in price levels shows a closer, correlation with the direct than with the indirect estimates of capital borrowings. In so far as the inductive method permits of definitive results, it has been shown in this chapter that the increasing flow of capi­ tal into Canada was accompanied by a relatively increasing price level in Canada as compared with other countries; the rise was most pronounced in the prices of domestic commodities and services, least pronounced in the prices of import commodities, intermediate between these two in the prices of export commod­ ities, thus operating to stimulate imports and to check exports, and so to adjust the Canadian commodity balance of trade to the capital borrowings. These results have been shown to be con­ sistent with the classical theory, and even to be demanded by the classical theory, if it is completed so as to take into considera­ tion sectional as well as general price levels. The inductive re­ sults of this chapter confirm the general proposition which has beeh laid down on deductive grounds, that the adjustment of the balance of trade to a newly introduced or increased disturbing factor is brought about through the influence of diverging price levels on the quantitative ratio of exports to imports.

M ECH AN ISM OF A D JU STM E N T

255

It may be noted parenthetically here that this proposition has bearing not only on the theory of international trade but on the problem of how,a new influence on prices arising in one country, such as the discovery of a gold mine, spreads its effects throughout the world. The connecting link between the price levels of various countries is to be found in the essential uniformity throughout the commercial world, and within the limits of transportation costs and tariff duties, in the prices of “international commodi­ ties.” The “domestic commodity” and the service price levels of the individual countries can be influenced by foreign forces only through their relationship, within the national boundaries, to the prices of the “ international commodities.”

CHAPTER XI TH E COMMODITY BALANCE OF TRADE AND TH E ADJUSTM ENT OF TH E BALANCE OF INDEBTEDNESS T h e C o m m o d it y B a l a n c e

of

T

rade

T h e co m m o d ity b alan ce of tra d e is b y fa r th e m o st im p o rta n t single fa cto r in th e final a d ju s tm e n t of in te rn a tio n a l b alances of in d eb ted n ess to m o re o r less p e rm a n e n t d istu rb in g factors. G old im p o rts an d exports, as item s in th e co m m o d ity b ala n c e of trad e, are a p relim in ary p h ase in th e a d ju s tm e n t of balances. T h e y ex ert th e ir m ain influence, n o t th ro u g h th e effect o n the b ala n c e of p a y m e n ts of th e ir ow n v alu es as d eb its a n d credits, b u t b y th e ir influence on p rice levels an d th ro u g h th em on the rem ain in g item s in th e co m m o d ity b alan ce of trad e.

Prices exert little direct influence on the volume of interna­ tional transactions in services. Tourists’ expenditures and in­ surance transactions will not be appreciably affected by changes in either direction in rates and prices. The amount of freight charges payable abroad or receivable from abroad by a given country is directly dependent on the volume of its foreign trade, on the proportions in which this trade is handled by foreign and domestic transportation companies, and on the amount of carry­ ing business done for other countries, as well as on freight rates. A disturbing factor to a country’s international balance of in­ debtedness, such as continued borrowings from abroad, will affect its balance of freight payments mainly through its influence through prices on the volume of commodity imports and exports, although it may conceivably affect the extent to which that country’s capital and labor is engaged in the carrying trade. Interest payments are dependent simply on the amounts of capital borrowings, the rates of interest originally agreed upon, and the extent to which the debtors fulfill their contractual obligations. 156

M E C H A N I S M OF A D J U S T M E N T

257

Non-commercial transactions, such as immigrants’ remittances, gifts, and the movements in and out of a country of migrants’ personal effects, because they are non-commercial in character, are wholly free from direct influence of capital borrowings or changes in price levels, and in the main are not appreciably affected by them even indirectly. A possible exception is in the case of capital brought in by immigrants, for an increase in capital borrowings abroad tends to create in the borrowing country a situation favorable to labor, and thus stimulates immigration. It follows that when a disturbing factor of substantial pro­ portions and long-continued duration, such as the Canadian borrowings abroad during the period under study, breaks the even balance of debit and credit international obligations, an even balance of payments is reestablished, and is maintained in spite of the debit balance of indebtedness, mainly through com­ pensatory variations in the commodity balance of trade exclusive of gold.1 Gold movements and transfers of securities and bank deposits are significant factors in the definitive adjustments of the balance only for casual and temporary disturbances in the balance of payments. Transfers of securities and bank deposits cannot be significant factors in the adjustment of the balance of pay­ ments to a continued debit or credit balance of indebtedness since they are themselves merely representative of some of the items in the balance of indebtedness to which adjustment must be made. Chart XV presents a comparison of the variations in the total Canadian balance of international indebtedness with the varia1 Cf. A. C. W hitaker, “ T he Ricardian Theory of Gold M ovem ents,” Quarterly xviii (February, 1904), p. 231: “ T he investm ent of capi­ tal abroad, the travel of tourists, and all the other factors outside of the balance of trade itself are the com paratively independent variables, the balance of trade in goods is the com pensatory variable in the balance sheet of total indebtedness.” Where the carriage of a country’s foreign trade is largely in foreign hands, the balance of freight paym ents will be a variable closely dependent on the volume of its commodity im ports and therefore will also exert a com pensatory influence on the total balance of paym ents. B ut if the im ports are valued c. i. f., as, e.g ., in Great B ritain, the freight charges payable on account of im ports will already be accounted for in the debit side of the com modity balance of trade. Journal of Economics, vol.

258

C A N A D A 'S B A L A N C E OF T R A D E

C H A R T XV T

he

C

a n a d ia n

T

otal

B

alance

P a r t ia l B

of

I n t e r n a t io n a l I n d e b t e d n e s s

alan ces,

19 0 0 -19 13

C redit.

Debit.

------------- D e b it com m od ity balance o f trade, gold coin excluded .................. D e b it balan cc of gold coin im ports and exports — • — D eb it balan ce o f service transactions — -• • — D eb it balan cc of non-com m ercial transactions T otal deb it balancc of internation al indebtedness

and

th e

259

M ECH AN ISM OF A D JU S T M E N T

tions in the partial balances. In confirmation of the reasoning presented above, the commodity balance of trade shows the greatest degree of correlation of the partial balances with the total balance of indebtedness.1 The balance of service transac­ tions also shows a substantial correlation. In large part this is due to the fact that the balance of payments on account of freight charges is dependent upon the volume of imports and exports. In part it is due to the fact that the growth in the debit balance 1 T he coefficients of correlation of the partial balances with the total balance (K arl Pearson’s formula) are as follows: Commodity balance of trade, excluding gold coin: r = + .98 ± .007. Gold coin balance: r = + .41 ± .150. Balance of service transactions: r = + .96 =fc .014. Balance of non-commercial transactions: r = + .79 ± .068. T he num bers of pairs are so few th a t the probable errors are alm ost worthless, and the coefficients add little to the value of the graphical presentation. DATA O F C H A R T X V T iie

C a n a d ia n

T o tal

B a la n c e o f t h e

I n t e r n a t io n a l I n d e b t e d n e s s

P a r t ia l

and

B a la n c es1

In millions o f dollars

Debit com­ modity bal­ ancc of trade, gold coin excluded*

Year 1900.................................. 1901.................................. 1902.................................. 1903.................................. 1904.................................. 1905.................................. 1906.................................. 1907.................................. 1908.................................. 1909.................................. 1910.................................. 1911.................................. 1912.................................. J9r3 ..................................

1 C redit balances in italic s. 3 T a b le X X I X , p. 103,

supra.

0

12 9

27 SI 40 56 117 23 67 142 206 276 20s

Debit bal­ Debit bal­ Debit bal­ Total debit ance of ance of ance of non­ balance of gold coin service commercial international imports and transactions3 transactions * indebtedness exports3 4 I

5 11 8 0 5 4 22 7 12 27 0 18

35 37 40 40 37 5i 56 62 80 87 97 114 136 157

3 3 9 10

5

8

7 1

8 0 0 8 23 34

37 21 27 69 91 83 112 183 132 160 251 355 435 414 supra. supra.

* Com puted from T ab les I I and I I I , pp. 30, 3a, ‘ T a b le X , p. 61, * T a b le X X X , p. ro6,

supra.

260

C A N A D A 'S B A L A N C E OF T R A D E

of interest payments followed closely the growth in net foreign capital investments in Canada, that is, in the total balance of international indebtedness. But Canada has always had a debit balance of sendee transactions, and the parallel growth in this period of this debit balance and the debit balance of international indebtedness shows not so much a true causal correlation as a false correlation arising out of the common pecuniary growth in all phases of Canadian economic activity during a period of general expansion and of rising prices. Only to a slight extent, therefore, was the correlation due to direct compensatory adjustments to the balance of international indebtedness. In order that an even balance of payments should be sub­ stantially maintained after the first appearance and during the continuance of the debit balance of indebtedness — that is, in order that the capital borrowings should enter Canada in the form of goods instead of in the form of money—there was necessary a change in the quantitative relationship of commodity imports to exports such that there would be an excess of imports over exports to absorb the surplus foreign credits created by the bor­ rowings abroad. As is shown in Chart XV, a small “ favorable” commodity balance of trade in the first few years of the period shifted in 1903 to an “ unfavorable” balance of trade increasing as the rate of borrowings abroad increased. Until 1903 the bor­ rowings abroad were barely sufficient, or were less than suffi­ cient, to meet the interest payments on earlier investments of foreign capital in Canada. From 1903 on, the new borrowings abroad exceeded the interest charges on the old borrowings,1and the surplus came into Canada mainly in the form of an excess of commodity imports plus freight charges thereon over commodity exports. The shift from a favorable to an unfavorable commodity bal­ ance of trade which accompanied the increasing flow of capital borrowings could have resulted from either a decrease in exports below or an increase in imports above what they would have been respectively in the absence of capital borrowings, or from both combined. The method by which this result would be brought 1 Cf. Table XXV, p. 94. supra, Table X X V III, p. io r, supra, and C hart XV.

261

M E C H A N I S M OF A D J U S T M E N T

about, according to the deductive theory, has already been ex­ plained, and in the case of exports has been given some measure of inductive verification: a relative rise in prices in the borrowing country, due in Canada immediately to increased bank deposits, in other countries under similar circumstances due probably to a preliminary flow of gold, both stimulates imports and checks exports. The theoretical expectation would be, therefore, that the adjustment should be brought about by both an increase in imports and a decrease in exports. The general expansion of industry and trade in Canada during the period under study operated independently of the influence of the capital borrowings, to increase both imports and exports. Moreover, the general rise in prices of itself operated to increase the money value of constant quantities of both imports and ex­ ports. It is impossible to determine with mathematical precision what the volumes of imports and exports would have been in the absence of capital borrowings. It is possible, however, from an analysis of the trade in individual commodities and of other re­ lated data, to ascertain with some degree of certainty whether the restrictive influence on exports and the stimulative influence on imports were both operating in the manner described in the deductive theory. R e s t r ic t iv e E f f e c t

o f C a p it a l B o r r o w in g s E xports

on

There follows an attempt to discover whether the capital bor­ rowings operated to restrict the volume of exports. In Table LII estimates of the total volume of Canadian commodity production at the beginning and the end of the period under study are com­ pared with the total exports from Canada for corresponding years. The data presented in this table show a marked decrease in the later part of the period under study, as compared to 1901, in the proportion of the total Canadian production of commodities which was sent abroad. Although the statistics for production are of uncertain accuracy, they probably serve well enough the present purpose. It should be noted, moreover, that much of the production in Canada during this period, and especially dur­

262

C A N A D A 'S B A L A N C E O F T R A D E

ing the later part of the period, was in the form of town, road and railroad construction, and farm, building and plant development, and that the production estimates given, which are for commodity production only, are therefore probably a considerable underesti­ mate of the actual increase in production. It is difficult to explain the decline in the percentage of exports to total commodity production, without reference to the capital borrowings from abroad. Some of the relative decline in exports was undoubtedly due to the increasing extent to which Canadian raw materials were being manufactured in Canada for Canadian consumption, instead of being exported in their crude form in exchange for imported manufactured goods. But this increase in manufactures would not have been possible in nearly the same degree had it not been for the foreign investments of capital in Canadian manufacturing enterprises. The expansion of manu­ facturing not only absorbed an increased proportion of the Cana­ dian production of raw materials, but it withdrew labor, from the production of raw materials which otherwise would have been exported, to the construction of plant and equipment and the fabrication, from imported raw materials, of manufactured comTABLE L II T

otal

C

o m m o d it y

P

r o d u c t io n

in

C

anada

C a n a d a , 19 0 1, 1 9 1 1 ,1 9 1 2 ,

and and

T

otal

E xports

from

19 13

In millions of dollars T o t a l com m odity p ro du ction in Canada1

T o t a l exports from C a n a d a 1

Year V a lue

V a lu e

P e r cen t of total p roduction

2 1 .7

1 9 0 1 .........................................................................

943

205

1 9 1 1 .........................................................................

2 ,0 3 9

302

1 4 .8

1 9 1 2 .........................................................................

2 ,7 6 1

376

13 6

1 9 1 3 ............................................................

2 ,8 5 9

471

1 6 .5

Cost 0} Living Report, v o l. ii, pp. 962-972;

1 F o r 1901 and 1911, (T o ro n to ), Ja n u a r y 3, 1914.

oj Canada

* T a b ic I I I , p. 33,

supra.

for 1912 and 1913,

Includes sm all am ounts of reexports of foreign products.

Financial Post

M E C H A N I S M OF A D J U S T M E N T

263

modities for domestic consumption. The development of roads, towns, and railroads, made possible by the borrowings abroad, absorbed a large part of the immigration of labor, and these con­ sumed considerable quantities of Canadian commodities which would otherwise have been available for export. Changes in rela­ tive price levels resulting from the capital borrowings were also an important factor in restricting exports, operating coordinately with the factors explained above. The influence of these factors on exports can best be traced by an analysis of the export trade by important groups of commod­ ities. The export commodities were grouped as nearly as was practicable in accordance with the following rules: all the impor­ tant export commodities were first divided into two groups, ac­ cording to whether their export increased or decreased relatively to total exports during the period under study; second, each of these major groups was again divided into minor groups, ac­ cording to whether its prices rose by more or less than 30 per cent during the period under study; third, each of these minor groups was divided into still smaller groups, on the basis of some important common characteristic relating to their production or consumption, where the second grouping had not already ac­ complished this. In all, the commodities grouped comprised 88 per cent of the total exports in 1900 and 86 per cent of the total exports in 1913, so that they are fully representative of the export trade as a whole. The items not included consisted in the main of commodities inadequately classified in the official export statistics, or for which price quotations were not available, or entering only irregularly and in insignificant amounts into the export trade. In two or three instances, notably oats and barley, commodities showing most prominently the influence of seasonal conditions and not reflecting a decided trend in any direction were omitted because they did not lend themselves to unambiguous grouping. It is indicative of the extent to which the export trade was in­ fluenced throughout by common factors that this elaborate sys­ tem of grouping led finally to only five groups, of which only two groups represented a substantial volume of exports, and one of these two groups alone included one third of the total exports

264

C A N A D A 'S B A L A N C E O F T R A D E

during the period under study. In connection with the inter­ pretation of the data about to be presented, it is important to bear in mind: (1) that in most cases all of the commodities in each group have in common the quantitative trend of their ex­ port, their price trend, and some characteristic relating to their production or consumption; and (2) that the results shown for each group reflect, therefore, not merely the aggregate trends for the groups as a whole, but also the trends for each individual commodity included therein. Table LIII presents the results of the analysis for commodities whose exports increased relatively to total exports. Group I consists of commodities whose price rose less than 30 per cent from 1900 to 1913 and which were produced during this period largely from newly-discovered or newly-developed natural re­ sources. They thus have in common the probability that a special factor was at work tending to make their costs of production resist the general upward trend characteristic of the period, and thus tending to exempt them from the restrictive influence on exports of the relative rise in the Canadian price level. Without any exception, they also have in common the fact that they were commodities produced in Canada in excess of the amount of domestic consumption to such an extent that they were depend­ ent very largely upon foreign markets for their sale. The com­ modities included are: wheat, wheat-flour, and flaxseed; copper, nickel, silver, and aluminum; asbestos; pulp wood, wood pulp, and paper. The production of wheat for export did not develop to large proportions until the virgin lands of the Canadian prairies, with their high yields at low cost in the first years of cultivation, were opened up to settlement, largely during the period under study and with the aid of capital borrowed from abroad. In 1899, only 10,000,000 bushels of wheat were exported; by 1913, the exports had increased to 120,000,000 bushels. The price of wheat clearly was determined not in Canada but in the world market. Al­ though the price of wheat did not rise as much as did domestic prices in general, the development of wheat-growingwasprofitable, nevertheless, because the virgin lands made cost of production

265

M E C H A N I S M OF A D J U S T M E N T

unusually low. Wheat-milling was dependent upon the produc­ tion of wheat, and developed with its development.1 Toward the end of the period under study, it became generally known that flaxseed was a profitable crop with which to bring virgin land into cultivation, arid its production increased at a rapid rate. Flaxseed in Canada may be regarded, therefore, as essentially a by-product of the breaking-up, for cultivation, of virgin wheat 1 T he Canadian exports of w heat flour consist m ainly of the lower grades, and are frequently sold a t “ dum ping” prices. The Canadian consumer dem ands a higher grade of flour than the im portant export grades. Export flour is therefore a by-product of the production of flour for the domestic m arket, although the prices of the different grades m ust move in close harm ony. (Cf. Cost of Living Report, vol. i, pp. 750 seq.) TA B LE L III T

o tal

E

xports, an d

E xports

w h ic h

E x p o r t s , 1900 T o ta l exports

I n creased R to

e l a t iv e l y

1 9 0 0 ........................ 1 9 0 1 ........................ 1 9 0 2 ........................

9 ° 3 ............... 1904 ............... 1905 ................... x

V alue in millions of increase over 1900 dollars

1630

8 .5

1 9 6 .0 2 1 4 .4 1 9 8 .4

1 9 .9

233-5

1907 3 ...........

18 0 .5

2 1 .3

33-4

Per cent of total exports

G roup II

'

17.4

I 7 .I

1 0 2 .1

1 6 .8 4 2 .8

3 6 .1 6 3 .8

1 8 .9 2 6 .9

1 0 4 .9

45-5

2 5 .2

34-0

1 9 .6

70.8

1 1 3 .0

274-3

6 7 .8

1 1 0 .9

4 0 .4

1 9 1 1 ...................

290.2

77-5

12 4 .8

43-0

1 7 2 .8

4 8 .6

2 30 .3

53-4

1 9 1 2 ...................

1913 ............... ■

355-8

D a t a from C an ada:

84-3

4 8 .4

9 2 .9

95-8

V'alue in millions o f dollars

5-5 7 -x

9 .0

8 .6

9-7

5-3

9 .2

5 -x

1 8 .1

1 1 4 .7

2 0 .6 2 0.4

25-5 3 2.0'

Annual Reports.

beginning A p r il 1 from 1907 on.

3 In te rc a la ry 9-month period from J u l y 1, 1906, to M a rc h 31, 1907.

4 .9

S -i

1 1 8 .6

10 4 .9

3-4

4 .0 4 .6 4 .0

1 1 .9

13-7 13-7

.5 1 14-5

P er cent of total exports

1 0 .2

1 1 5 .6

1 0 8 .3

ix x

Departm ent of T ra d e and Commerce,

ports, Can adian Produce. > Ju n e 30 u n til 1906;

Ending

5 0 .9

1 1 1 .5 16 4 .0

4 3 1 .6

9 1 .1 9 1 .6

4 2 .0

2 79 .2

1909 ...............

2 4 6 .7 2 4 2 .6

99-3

1 2 .0

1 9 1 0 ...................

1 9 0 8 ........................

100.0

13-3

34-2 38-3 40-5

1907 ...............

W eighted p rice index

3 11

21-3

19 0 .9

1 9 0 6 ........................

V alue in millions o f dollars 2 1 .8

177-4

o tal

E xports which increased relatively to total exports Group I

Fiscal y e a r s a

T

to

19 13 1

5-6 5-6 6-5 7-5 7 -o 7 .2

7-4 M erchandise E x ­

266

C A N A D A ’S B A L A N C E OF T R A D E

lands. The market for flaxseed was mainly in foreign countries. Its price was lower in 1913 than in 1900, but it rose from 1909, the first year in which there was a substantial Canadian produc­ tion, to 1912. In 1899 there was practically no export of flax­ seed. In 1913 the export amounted to 21,000,000 bushels, with a value of $25,000,000. The increase in the exports of flaxseed in spite of the failure of its price to rise in full sympathy with the general rise in Canadian prices is to be explained, therefore, by the special circumstances surrounding its production in Canada, namely, its low cdst of production on virgin lands and its desirabil­ ity as a means of preparing virgin land for wheat cultivation. The production in Canada of copper, nickel, and silver in sub­ stantial quantities began practically with the opening of the twentieth century, when the discovery and development of rich low-cost bodies of ore led to a rapid expansion of the mining in­ dustry,1 which was highly profitable under these circumstances even though the prices of these minerals remained almost con­ stant during a period of marked upward movement in the general price level. Canada provided a market for only a small fraction of these products. In the case of nickel, Canada was the chief source of the world supply. Aluminum ore is not mined in Canada, but during the period under study a single plant was established in Canada to make aluminum from imported bauxite, using the cheap and newly-developed water power at Shawinigan Falls in the process. The products of this plant are almost wholly exported. The main source of the world’s supply of asbestos is the East­ ern Townships region of the Province of Quebec, where asbestos has been mined for many years. The price of asbestos fell during the period under study. The increase in the export of asbestos, which, however, never reached $3,000,000 in value in any one 1 “ Previously to the opening of the present century the developm ent of the m ining industry of C anada had been com paratively small. T he mineral resources of the Dominion were little known. T he nickel fields of Sudbury [which also yield copper in large quantities] had been discovered b u t th e commercial value of the deposits was n ot realized. N either Cobalt [silver] nor Porcupine [gold: n ot de­ veloped until 1909] had been discovered. Since 1900 the industry has grown by giant strides.” R. Goldwin Sm ith, Monetary Times, January 21, 1921.

M ECH AN ISM OF A D JU S TM E N T

267

year, may perhaps be accounted for by the working of new and richer resources, or by improved technological processes, or by the necessity of operating the mines because of the fixed invest­ ment of capital therein. The great proportion of the product was necessarily exported. It was generally known that the industry was not flourishing financially in the later years of the period under study.1 The prices of paper and its raw materials fell during the period under study, but the application to the industry in Canada, of American methods of large-scale production, and the building of railroads into the extensive northern timber regions situated near rivers providing both cheap power and a cheap means of trans­ porting the logs to the mills, made production profitable even at the lower prices. The gradual exhaustion of the American timber resources, the great increase in the consumption of paper in the United States, and the provincial restrictions on the export of pulp wood, combined to create a market in the United States for greatly increased quantities of both paper and wood pulp. The great increase shown in Table LIII in the export of the commodities in Group I in spite of the failure of their prices to keep pace with the general upward trend is to be explained in every instance, therefore, by the discovery or new development of low-cost resources or methods of production which prevented cost of production also from keeping pace with the general up­ ward trend. Of the total increase in exports of all commodities, amounting to $268,000,000 from 1900 to 1913, $208,000,000, or almost 80 per cent, is accounted for by the increase in the ex­ ports of the commodities in Group I. If it be remembered that there was little increase in the prices of the commodities in Group I, and that much of the increase in the value of total ex­ ports reflected an increase of prices rather than of quantities, it becomes apparent, even without further analysis, that very nearly all of the increase in Canadian exports during a period of rapidly increasing population and production in general can be accounted for by special circumstances which caused the cost of production 1 Cf. R . Pothier D oucet, “ T he Canadian Asbestos Industry,” in (E . Victor, editor), Toronto, 1916, pp. 212 seq.

Future

Canada’ s

268

C A N A D A ’S B A L A N C E OF T R A D E

of a few important export products to resist the general upward trend. Group II includes without further classification all the other commodities whose export increased substantially relatively to total exports. It was not feasible to carry out the general plan of classification explained above for the commodities in this group, either because the official commerce statistics were inad­ equately classified or because price quotations were not available. Nevertheless, the commodities included in this group have cer­ tain characteristics in common. The commodities included are as follows: rags, bran, and hides and skins; settlers’ effects; fer­ tilizers; “.ores not elsewhere specified, including chromic iron” ; clover seeds; agricultural implements, carriages and automo­ biles, and liquors. Rags, bran, and hides and skins are by­ products of important industries. The amount of their produc­ tion will not be determined to an important degree by either their own prices or their separate costs of production. If in­ creased production in the industries of which they are by-products results in an excess in the supply of these commodities over the domestic demand, their export will increase largely regardless of general price trends. Settlers’ effects are a non-commercial item, the volume of whose exports is independent of prices and costs of production. The export of miscellaneous ores may well have been governed by the same conditions which have been shown to have applied to the mineral products in Group I. No data are available which throw any light on the factors explaining the in­ creased exports of clover seeds. The remaining items are manu­ factured products, largely specialties. The item, carriages and automobiles, consisted in the later years predominantly of auto­ mobiles. Their production in Canada began only toward the end of the period under study, and it is a matter of common knowledge that their export from Canada was confined wholly, or almost wholly, to exports to the other portions of the British Empire, to some extent with the advantage of preferential tariffs, from the Canadian plant of the Ford Company. The export of agricultural implements and of liquors was in each instance also confined largely to a few large concerns who had developed foreign

M ECHANISM OF ADJUSTM ENT

269

markets for their specialized products. Not much significance attaches, therefore, to the increase in the exports of this group of commodities in the face of the general tendency of Canadian costs of production to rise more rapidly than prices outside of Canada. These commodities were by-products, or, like the commodities in Group I, were produced under special circum­ stances making costs of production unusually low, or were manu­ factured specialties not subject to keen price competition, or enjoyed special tariff privileges in export markets. Of the total increase in exports from 1900 to 1913, amounting to $268,000,000, the commodities in Groups I and II account for $263,000,000 or approximately 98 per cent. If allowance is made for the general rise in prices, the aggregate exports of all other commodities not only decreased relatively to total exports, but decreased absolutely and to a substantial degree in terms of quantities. With the possible exception of some of the items in Group II for which no price quotations were available, not a single important instance was found of a commodity which rose in price as much as 30 per cent and which nevertheless main­ tained its relative proportion to the total exports. Since the rise in domestic prices was on the average substantially greater than 30 per cent, and since the general expansion of population and production in Canada during this period should have tended of itself to increase the volume of exports, this is a convincing in­ ductive demonstration that the relative rise in Canadian as com­ pared to foreign prices checked the export of all commodities except by-products and those which were favored by special factors operating, counter to the general trend, to check the rise in costs of production. In the large, the maintenance of the volume of Canadian exports in the face of rising costs of produc­ tion was made possible only by the discovery and exploitation of new low-cost'natural resources. There was not even a single conspicuous instance of what would have been altogether in keeping with theoretical expectations, namely, of a commodity whose relative importance in the total export trade was main­ tained even though its price rose in full sympathy with the rise in Canadian prices generally, because the world rise in the price

CANADA'S BALANCE OF TRADE

of that commodity was greater than the general rise in world prices. This is a convincing inductive demonstration, therefore, that part of the mechanism of the adjustment of the Canadian balance of indebtedness to the capital borrowings was the re­ strictive influence exercised on exports by the increase in Cana­ dian purchasing power and by the relative rise in the Canadian price level resulting from the capital borrowings abroad. This is further confirmed by Table LIV, which presents a grouping of those commodities whose export declined relatively to total exports. Groups III and IV both include commodities whose prices rose in full sympathy with the general rise in domes­ tic prices. These commodities were divided into two groups for TABLE E

xports

w h ic h

D

ecreased

R e l a t iv e l y

to

T

otal

2 9 .8

93-8

1 1 4 .1

39-3 52-9 45-2

23.X

9 8 .7

1 8 .3

1 0 8 .8

4 7 .0

2 1 .9

10 3 .2

1 7 .2

1 0 3 .8

47-5

19 .O

II O .9

4 0 .6

10 0 .3

1 4 .9

12 0 .5

42.7

23-9 21-3 18 .3

10 6 .9

33 -1

18 .3

10 0 .0

33-6

20.6

1 0 0 .0

1 0 5 .0

3 1 .2

1 7 .6

10 9 .3

5 2 .0

26.5

10 7 .8

3 6 .0

18 .4

19 0 3

54-2

1904

509

25-3 25-7

4 7 .8

2 4.7

X902

1905

19 131

Group V

2 4.4

1901

to

Per Per Per W eighted W eighted Value in W eighted V alue in V alue in price price millions cent of millions cent of price millions cent of total total total index o f dollars index index of dollars of dollars exports exports exports 2 6.7

19 0 0

E x p o r t s , 191x3

G roup IV

G roup III Fiscal ye ar’

L IV

43-7 43-2

19 0 6

59-9

25-7

1907 3

4 7 .0

26.0

1907

6 0 .4

I I 2 .7

113-5 1 15-9 1 2 7 .8

39-2 34-1 36-3 34-9 2 7 .2

139-7

2 4.2

54-7

24-5

19 0 8

2 2 .5

1 3 6 .S

2 3 .0

19 0 9

6 6 .5

2 3 .8

19 10

63-1

137-9

23.0

19 11

6 6 .8

23.0

I9 12

6 5 .0

1913

6 9 .0

i

5 -i 9 .8

37-6 3 2 .6

12 6 -5

33 -i

1 1 .9

1 0 5 .8

3 2 .1

1 1 .7

10 9 .8

3 2 .4

1 1 .2

10 8 .0

1 0 .6

1 1 5 .0

8-3

10 9 .5

1 4 1 .2

18 .9

6 .9

14 8 .9

1 4 .9

145-3 133-5

18 .3

154-5

5-i

8 .6

2 .4

1 4 9 .2

1 6 .0

1 6 1 .0

» D a t a fro m C a n a d a :

9 1 .8

1 2 2 .9

2 0 .4

3 -i

10 0 .0

1 2 1 .5

9-5 7-3

13-3

2 4 .0

1 6 3 .2

37-5 35-9

15-2 13-4

1 0 6 .6 10 8 .5

D e p a r tm e n t o f T r a d e a n d C o m m erce , Annual Reports. M e r c h a n d is e E x ­

p o r ts , C a n a d ia n P ro d u c e.

* Ending J u n e 30 u n til 1006; beginning A p r il t fro m 1907 o n . * In te r c a la r y 9 -m on th p e rio d fro m J u ly 1 , 19 0 6 , to M a r c h 3 1 , 1907.

MECHANISM OF AD JUSTM ENT

271

separate analysis, according to the degree in which their export declined relatively to total exports. Group V includes commodi­ ties whose prices failed to keep pace with the general rise in prices. Group III includes the following commodities: fisheries prod­ ucts, lumber, furs,1 leather, hay, apples, and potatoes.1 Their export in terms of dollars increased in spite of their rise in price, but it did not increase sufficiently to maintain their original pro­ portion to total exports. The increase in the value of the exports of commodities in this group was not as great as the increase in their prices both for the group as a whole and for most of the commodities in the group. In terms of quantities, therefore, there was an absolute decrease in export, which is reasonably to be attributed to the restrictive influence on exports of the relative rise in their prices as compared to world prices. - Group IV includes the following commodities: cattle, sheep, horses, bacon, eggs, butter, canned meats, and pease. All of these except pease are animal products or their derivatives. All were primarily domestic commodities even at the beginning of the period under study. Their prices consequently rose in full sympathy with the rise in domestic prices generally. The rise in prices, combined with an increased domestic market, operated almost wholly to eliminate their export. In the fiscal year be­ ginning April 1, 1913, it is true, there was a revival of export, but this is to be attributed to the artificial and somewhat temporary stimulus arising out of the remissions and reductions of duties on these products in the United States Tariff Act of October 3, 1913, which was in force during half of this year. Chart XVI shows that these commodities were gradually moving during this period from an export to an import basis. Group V includes only four commodities: bituminous coal, lead, gold (in quartz, nuggets, dust, etc.), and cheese, of which only the 1 T h e exports o f furs and potatoes increased in value sligh tly more than did the total exports. T h e y were nevertheless included in Group I I I , perhaps illogically so, because their rise in price was so great th at in terms of quantities th ey would have shown a v ery slight absolute increase in export and a substantial decline in relation to total q u a n tity exports. T h e am ounts o f both items are small.

272

CANADA’S BALANCE OF TRADE

two last-named were important in the export trade. All of these commodities except coal were throughout the period primarily export commodities, finding their principal markets abroad. Even with respect to coal, exports were confined largely to the Nova Scotia product, which, during the winter months when water transportation to the important Canadian markets was impos­ sible, was chiefly marketed abroad, especially in New England. The dependence of these commodities on foreign markets is reCH ART XVI I m p o r t s a n d E x p o r t s o f C o m m o d itie s i n

G ro u p

IV, 1900-1913

MECHANISM OF AD JU STM ENT

273

fleeted in the failure of their prices to rise in full sympathy with the rise in the Canadian price level. W ith the stationary price for crude gold, its production, which is almost wholly for export, would have declined even more than it did had it not been for the discovery of new and low-cost ore beds in the Porcupine dis­ trict in 1909.1 Unlike other dairy products, the Canadian pro­ duction of cheese has always been predominantly for export. Its price, therefore, was determined largely in England, its most im­ portant market. Its price trend contrasts sharply with the price trends of butter, milk, and eggs, domestic commodities. Com­ pared in each case with 1900 prices, the increase in price in 1913 was: 32 per cent for butter; 29 per cent for milk; 85 per cent for eggs; 14 per cent for cheese. The failure of the price of cheese to rise as rapidly as the price of other products competing for the same factors of production caused producers to turn from its 1 I t is assumed here th at the price o f gold alw ays remains stationary in terms of gold standard currency. As a m atter of fact, during a period of rising prices the price o f gold ore tends to fall because of the greater m oney cost of smelting, refining, and transportation to m arket.

DATA OF CH AR T X VI I m p o r t s a n d E x p o r t s o f C o m m o d itie s in G r o u p

IV 1

I n m illio n s o f d o lla rs Fiscal year

Im ports

IQ O I

....................................

................................

1 9 0 2 .............................................. ................................

1903 .................................... ................................. I 9 °4 .............................................. ....... «9 ° S .............................................. 1 9 0 6 .............................................. .................................

1907 1 .................................. 19°7 ..............................................

2-3 2-7 3-0 3-1

3 1-2 3 6 .0

39-2 34 - i 36.3 34-9

3-2

2 7 .2 2 4.2

1 9 0 8 ..............................................

2 3 .0

1909 ....................................

................................. 1 9 1 0 .............................................. .................................• 1 9 1 1 .............................................. ................................ 1 9 1 2 ..............................................

1913 ..............................................

Exports

33-6

1 9 0 0 ..............................................

................................

3 -0 4-3

.

20.4 1 8 .9

8 .6

1 4 .9

9-3

13-3

8 .6

1 D a ta fro m D e p a r tm e n t o f T r a d e an d C o m m erc e , A n n u a l Reports: a n im a ls , b a c o n , e g g s , b u tte r , cann ed m e a ts , an d pease . 1 N o t c h a rted .

F isc a l y e a r s en ding J u n e 3 0 u n til 1906; beginning A p r il 1 fro m 1907 on.

In te r c a la r y o -m o n th p e rio d e n d in g M a r c h 3 1 , 1907.

274

CANADA’S BALANCE OF TRADE

production to the production of more profitable commodities.1 The decline in the exports of the commodities in this group, not only relatively to total exports but absolutely in terms of both values and quantities, is to be attributed to a decline in their pro­ duction for export rather than to an increase in the domestic consumption. This is in turn to be attributed to their failure, owing to their dependence on foreign markets, to rise in price in proportion to the rise in their costs of production. The foregoing analysis of the Canadian export trade has shown that the increase in the value of the total exports was due almost wholly to the entrance into the export trade of the products of newly-exploited natural resources, where special factors kept down the costs of production. Although production in general was undergoing great expansion during this period, the exports of all but a few commodities actually decreased in terms of quantities. In some cases exports declined because their prices rose in full sympathy with the general rise in Canadian prices and therefore became too high for foreign markets. In other cases exports declined because their prices did not rise in full sympathy with the general rise in Canadian prices, so that their production became less profitable. Prices rose most and exports declined most for those commodities which found a large part of their market in Canada. Throughout the range of the export commodities of which there was substantial consumption in Canada, there was convincing evidence of the restrictive influence on exports arising out of both the increased purchasing power acquired by a borrowing country and its relative rise in prices as compared to other countries. C

o m m o d it y

Im

ports

and

th e

B

alance

of

I n t e r n a t io n a l

In d ebted n ess

Variations in commodity imports are unquestionably, under usual circumstances, a more important factor than variations in commodity exports in the adjustment of international balances of indebtedness to capital borrowings. Countries which bor1 C f. Statem ent o f R . M . Ballantyn e, before Board o f Inquiry on the Cost of L ivin g , January, 1914. (Cost of Living Report, vol. i, p. 47.)

MECHANISM OF AD JUSTM ENT

275

row capital on a large scale are typically possessed of abundant undeveloped natural resources for whose exploitation their own - capital does not suffice. Under these circumstances their com­ parative advantage in foreign trade is generally largely confined to the export of the primary products of these natural resources, limited in their range but representing a large part of their total commodity production. Marked variations in the export of these few commodities therefore mean marked variations in their production. Continued production, however, is essential to the continued employment of labor and the payment of fixed charges on the capital investment. Production, and therefore export, will respond only slowly and incompletely to changes in prices. Ex­ cept for commodities for which there is no important domestic demand, the volume of export will probably respond more conspicuously to changes in domestic demand, either for the products themselves or for labor, arising out of the capital bor­ rowings, than to changes in relative prices. Imports, on the other hand, are for such countries more varied in their range, have less influence on the volume of domestic production, and are therefore more flexible in their volume. Marked and rapid fluctuations in imports cause less disturbance to industry in such countries, and necessitate less internal readjustment, than do cor­ respondingly marked variations in exports. If capital borrowings require sharp adjustments in the commodity balance of trade of the borrowing country, these are effected more easily through variations in the rate of import than in the rate of export. Pro­ fessor Williams, in his study of Argentine trade during a period of capital borrowings, clearly demonstrates the greater importance of variations in imports than in exports, in the adjustment of the commodity trade balance of that country to the capital borrow­ ings.1 In many respects the Argentine situation resembled the Canadian one. There is less specialization of production, that is, there is a greater variety of production and relatively more pro­ duction for the domestic market, in Canada than in the Argentine, however, so that in Canada exports are more flexible than in the Argentine. 1 J. H . W illiam s, Ch. xv.

Argentine International Trade under Depreciated Paper,

276

CANADA'S BALANCE OF TRADE

Table LV compares the variations in the volume of imports into Canada with the variations in the volume of Canadian net borrowings from abroad. It demonstrates clearly that the bor­ rowed capital was transferred to Canada mainly in the form of increased commodity imports. Some of the increase in the value of the imports was undoubtedly due to the rise in the prices of the import commodities and to the increase in population. Even if generous allowance is made for these two factors, there still remains an increase of imports sufficient to account for a large share of the capital borrowings. In spite of the operation of other factors in the adjustment of the balance of indebtedness, there is apparent a substantial measure of correlation between the variations in imports and the variations in net capital bor­ rowings. TABLE C o m m o d it y I m p o r t s

and

th e

B alance

LV o f

I n t e r n a t io n a l I n d e b t e d n e ss

In millions of dollars Com m odity im ports1 Calendar years

Amount

Increase over preceding y e a r5

D ebit balancc of interna­ tional indebtedness1 Increase over preceding year*

Amount

1 8 9 .3 1 9 2 .6

3-3

1 5 .3 6 .1

2 0 .2

1904 ................................................................. .

2 5 6 .8

5 2-5

6 9 .2

8 .5

9 1 .0

2 1 .8

1.6

28.6

392-5

6 0 .4

II

18 2 .8

511

8 8.5

9 0 .8

534-2

8 3 .8

10 4 .2

6 5 1 .2

1 1 7 .0

2 8.1

3 6 1 .9

8 0.4

4 *4-3

6 94 -2

1 S e c T a b l e I I I , p . 3 3, su p ra .

7 1 .2

79-9

3 1 2 .6

T o t a l in c r e a s e o v e r 1 9 0 0 r a t e . . . .

4 1 .8

8 .0

2 6 9 .2 3 2 9 .6

•

2 ,4 6 2 .4

! S e e T a b le X X X , p . 105, supra.

2 0 .9

1 ,8 5 8 .9

3 D e c rea se s in ita lic s .

MECHANISM OF ADJUSTM ENT C

a p it a l

B

o r r o w in g s

and

Im

ports

of

C

a p it a l

2 77 G

oods

It is often taken for granted that capital borrowings must result in corresponding imports of capital goods.1 It is impossible to determine even with approximate accuracy what proportion of the imports is properly to be classed as capital goods. The classification of commodities in the Canadian import statistics is often inadequate for this purpose. In other cases the same com­ modities may be both consumers’ goods and capital goods, de­ pending upon the uses to which they are put by the owner. Coal, for instance, may be used in the heating of residences or in the production of railroad equipment. In order to discover whether the capital borrowings affected the proportions in which the .im­ ports consisted of capital goods and consumers’ goods, respec­ tively, the total imports were compared with the imports (i) of selected items chosen as being most nearly representative of capital goods and (2) of foods and a group of miscellaneous com­ modities selected as being typically consumers’ goods. The re­ sults of the comparison are given in Table LVI. Table LVI shows that during the period of increasing capital borrowings an increasing proportion of the total imports con­ sisted of capital goods and a decreasing proportion consisted of consumers’ goods, but the change in relative proportions was only moderate. C. K. Hobson has shown that British invest­ ments in railroad enterprises in the Argentine, India, and Aus­ tralia were generally accompanied by increased imports into these countries of railroad equipment and materials.2 Canada, how­ ever, unlike these countries, is itself an important producer of heavy machinery, railroad rolling stock, rails and other capital goods. Less correlation is to be expected, therefore, for Canada than for these other countries, between borrowings abroad for specific enterprises and imports of equipment and material for 1 C f. J. H . W illiam s, “ G erm any’s Reparation Paym ents,” American Economic 1920, p. 52: “ T h e borrowings will take the form of goods, — construction materials, m achinery, m anufactures of various sorts; and p ast experience has shown th at these goods, the direct product of loans, are most lik ely to be purchased in the country m aking the loans.” 2 C . K . Hobson, The Export of Capital, pp. 8 seq.

Review, Supplem ent, M arch ,

CANADA'S BALANCE OF TRADE

278

these enterprises. Moreover, in the interpretation of statistics of imports of capital goods, it should be remembered that a large part of these imports is unquestionably made for purposes of maintenance and replacement of already existent plant and equipment, and therefore does not reflect new investments. For most forms of capital investment a large part of the expenditure T A B LE LVI T

otal

I m po r ts, Im po r ts

of

Selected C

Se l e c t e d C

o n su m ers’

G

a p it a l

o o d s,

G

o o d s, a n d

19 0 0

to

I m ports

of

19 131

In millions of dollars Imports of selected consumers’ goods T o ta l imports

Imports of selected capital goods *

Selected miscellaneous commodities *

Foods*

F iscal y e a r 4 Value

V alue

o f total im ports

49-7

288

4 8 .4

2 7 .2

1 9 0 1 ......................

72 -S 177-7

1 9 0 2 ......................

19 6 .5

1903 ...................... 1904 ...................... 1905 ......................

58-4

22 4 .8

7 2 .7

2 4 3 .6

7 7 .8

2 5 1 .6

7 8 .2

1 9 0 6 ......................

283-3

8 6 .4

32.3 31-9 3i * 30-5

19 07 6..................

2 4 9 .7

79-7

3 i -9

1 16 .8

1 9 0 0 . ...................

I

2 9 .7

9 ° 7 ......................

35I -9

1 9 0 8 ......................

288.2

1909 ......................

84-3

33-2 29-3 3 0 .6

I

3 6 9 .8

1 1 3 .2

1 9 1 0 ......................

451-7

1 5 1 .6

1 9 1 1 ......................

5 2 1 .4

1 8 3 .7

1 9 1 2 ......................

6 7 0 .1

1913 ......................

255-7

6 1 8 .5

2 3 2 .7

33-6 35-2 3 8 .2

37-6

Value

33-6 34-0 31-7 33-2 36-7 37-9 45 -o 38 .8

54 - i 5i- i 55-7

Per cen t of total imports

Value

Per cent of total imports

25-3 25-4

1 6 .1

43-7 45-2 50-7

1 4 .8

6 o .c

2 6.7

iS - i

6 1 .9

19-5 1 9 .1

2 5.8

25-4

5-i 15-9

64-5

2 5 .6

7 2 .5

2 5 .6

15-5

63-4

25-4

15-4

8 6 .7

24.6

1 7 .7

7 1 .4

24.6

i

5

97-6

2 6 .4

6 6 .9

i -i 1 4 .8

1 1 0 .2

24.4

8 2 .2

1 5 .8

1 1 3 .8

2 1 .8

9 2 .2

1 3 .8

1 4 2 .6

2 1 .3

8 7 .4

1 4 .1

12 9 -5

20.9

1 D a t a fro m C a n a d a : D e p a r tm e n t o f T r a d e a n d C o m m erc e , A n n u a l R eports. M e rc h a n d is e Im p orts E n te re d fo r C o n su m p tio n . ' B r ic k s , c la y s , a n d tile s ; c em en t; c o a l, b itu m in o u s ; ra ilro a d c a r s ; e le c tr ic a p p a ra tu s ; ships; m in e ra l o ils ; g u n p o w d er a n d e x p lo s iv e s ; s to n e a n d m a n u fa c tu re s th e reo f; w ood an d m an u factu res th e r e o f; c o p p e r , iro n , le a d , t in , z in c , a n d m isce lla n eo u s m e tals o th e r th a n g o ld , s ilv e r , a n d b ra ss, and m a n u fa c tu re s th e reo f. * A l l fo o d s , fo od stu ffs, a n d feed stu ffs. * T h ir t y ite m s a n d g r o u p s , a ll ty p ic a lly con su m ers’ goo d s. * E n d in g J u n e 30 u n til r