The Canadian State, the Accumulation of Capital, and the Great War

The Canadian State, the Accumulation of Capital, and the Great War R. T. NAYLOR Introduction The shadow of pending cataclysm that spread over Europe in 1914 was initially greeted, if not with overt enthusiasm, then at least with some anxious satisfaction in Canada. War, to the Canadian business elite, w~s traditionally a triumphant event. Wars over the course of Canadian commercial history had meant good times booming British military expenditure, high prices, soaring exports, and the eradication of the problem of unemployed manpower, one way or the other. Peace, on the other hand, meant depression - the drying up of the inflow of funds on military account, a collapse of prices and real estate values, rising unemployment and social tension. It is thus easy to comprehend the degree of satisfaction that greeted the outbreak of the Great War, the optimism that it would sop up Canada's then chronic unemployment problem, send exports climbing, and usher in a new wave of prosperity.1 In the short run the war did indeed produce a veneer of prosperity. In the long run, however, its economic costs were enormous and its effects served to confirm, then reinforce, Canada's traditional reliance on staple exports, on foreign capital to finance development, and on second-hand industrialization, albeit at the same time shifting the principal axes of economic dependence away from Britain and towards the U.S. Pre-War Expansion and Collapse Sparked first by the Klondike gold rush, then by the shift of the North American wheat frontier, the early years of the twentieth century witnessed a phenomenal rate of economic expansion in Canada: population growth, land settlement, urban development, and the investment in social overhead capital that accompanied them. But the prosperity deriving from the opening of the new primary resource frontier was an artificial one, 26 based on con~truction rather than production, and presupposing a breakneck rate of overseas borrowing. Over the period 1912-1913 nearly 25 percent of all labour and productive facilities in Canada were engaged in the production of capital goods, and about half of the capital invested in the pre-war boom came from foreign sources. By 1913 capital imports had risen to an annual rate of $500 million, a figure equal to about 25 percent of national income.2 The construction boom, floating atop a flood of overseas, especially British, investment funds that poured into Canadian government and corporate securities, produced a remarkable degree of interregional integration in the development process. Complemented by a great wave of migration that provided the necessary construction workers, farmers and farm labour, and industrial workers, British portfolio capital financed the building of two new transcontinental railway systems as well as the colonization projects that populated 200,000 new farms and oversaw the preparation of millions of acres for future grain output. British and Canadian money also poured into housebuilding and land speculation throughout the prairies. The feverish pace of construction activity in the west, as well as the rising population of farms, towns, and construction camps, stimulated the producers' and consumers' goods industries springing up elsewhere in Canada. In British Columbia the leading sector of the provincial economy, that of the forest-based industries, found its most valuable single customer in the new agricultural frontier with its insatiable demand for lumber and shingles, railway ties, and wood by-products. Nova Scotia saw a rapidity of industrial growth that was second to none - derivative largely from an iron and steel boom induced by the railway building frenzy. As the new transcontinental railways joined their predecessor and spanned the country, demand for coal also accelerated , to the delight of Nova Scotia, Alberta, and British Columbia mine owners, and to the general misfortune of their employees. Behind it all lay the promise of an everexpanding British empire, of British capital for building infrastructure, and of British markets for staple output. To that concept of imperial Revue d'etudes canadiennes Vol. 16, Nos. 3&4(Automne-Hiver1981 Fall-Winter) prosperity, Canada's commercial and financial elites were eager to pledge allegiance. In 1912 the President of the Bank of Commerce, Sir Edmund Walker, proudly proclaimed to the Canadian Club of Montreal that "We are determined to...