The Canadian Economy and Its International Aspects
- The Empire Club of Canada Addresses (Toronto, Canada), 18 Mar 1948, p. 299-311
- Jellett, Robert P., Speaker
- Media Type:
- Item Type:
- The importance in world affairs which is held by Canada as a substantial part of the British Empire. Public debt and taxation, with figures. The net debt of the Federal Government at March 31, 1939. Necessary increases during the war years. The issue of "Active Assets." The difficulty of dealing with such huge figures. Dollars raised through taxation, with figures from 1939, 1946 and 1947. The estimated surplus. Future taxation. Hopes for a great decrease in public expenditure now that we have a kind of peace or at least a cold war instead of a very hot one. Indications of further heavy expenses. Costs of the social programme. Government largesse. Figures on transfers to persons from Government for Family Allowances, War Service Gratuities, Re-establishment and Re-habilitation Grants, Pensions, Relief, Mothers' Allowances, Prairie Farm Assistance and Grants to Charities, etc. in 1938 and in 1946. Foreign trade. Shortage of U.S. dollars as a world problem. Canada-United States trade. Import and export figures showing an adverse balance of $918,000,000. Details of imports. Canada-Great Britain trade, with a net credit balance of $264,403,000 in 1938 and a net credit balance of $396,073,000 in 1946. Settlement of trade balances. The need for a return to free convertibility of national currencies at realistic exchange rates. Canada's Post-War Position. Canada's capacity for production greatly enlarged by the end of the war, but an imbalance existing in the capacity of Great Britain and other countries abroad to pay for goods produced. Gifts and Loans. Dollar figures of monies given or lent to the United Kingdom. Reasons for such gifts and loans to the United Kingdom, and other countries. How Canada benefits. Personal Incomes and Expenditures, with detailed figures. Savings, also with the dollar figures. Growth in Business. Figures that indicate progress and encourage Canadians to look forward confidently. Taxes Vs. Incentives. The speaker's belief that counteracting inflation with high taxes is a mistaken approach, and why he believes this to be so. Saving Discouraged. Ways in the which the incentive to save is being discouraged. Double Taxation. How succession duties are in fact a form of double taxation. The introduction of a bill to re-write the Income Tax Act; an opportune suggestion that the effect of heavy taxation upon all extra effort and productiveness should be seriously reconsidered, and that the Dominion Government retire from the field of succession taxes. Free Enterprise. The role and results of free enterprise. The long-term view of Canada's financial position full of promise.
- Date of Original:
- 18 Mar 1948
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THE CANADIAN ECONOMY AND ITS INTERNATIONAL ASPECTS
BY ROBERT P. JELLETT
Thursday, March. 18th, 1948.
REVEREND SIR, DISTINGUISHED GUESTS, LADIES AND GENTLEMEN
It is an honour to introduce to you, today MR. ROBERT PATTERSON
JELLETT, President, The Royal Trust Company, Montreal. Our Guest of Honour was
born in Ontario and educated at Trinity College School, Port Hope, and is now a
member of the Board of Governors of that well known College.
Our guest commenced his business career with the Bank of Montreal
and 46 years ago joined the Royal Trust Company and in 1912 was made Assistant
Manager and Superintendent of Branches. Later he was appointed General Manager
and in 1943 appointed President of his company.
Our guest is a past President of the Montreal Board of Trade and
past President of The Canadian Chamber of Commerce and he led an important
delegation from The Canadian Chamber of Commerce to the Tenth Congress of The
International Chamber of Commerce in Copenhagen in June, 1939.
Our guest and speaker has devoted much of his time to welfare and
charitable organizations and is Chairman (if the Board of Governors of the
Welfare Federationa Life Governor of the Montreal General HospitalHonorary
Treasurer of the Art Association of Montreal and throughout the war was active
in War Savings Committees and Red Cross Campaigns and many religious and
Before calling on MR. JELLETT, who will address us on the subject:
"THE CANADIAN ECONOMY AND ITS INTERNATIONAL ASPECTS" I would remind hint that
Viscount Morley, English writer and philosopher, stated nearly a century ago in
writing of Richard Cobden, English statesman and economist--I quote:
"Great economic and social forces flow with a tidal sweep over
communities that are only half conscious of that which is befalling them. Wise
statesmen are those who foresee what time is thus bringing, and endeavour to
shape institutions and to mould men's thought and purpose in accordance with
the change that is silently surrounding them!"
I have a great deal of pleasure in introducing to this audience MR.
ROBERT PATTERSON JELLETT.
REVEREND SIR, DISTINGUISHED GUESTS, LADIES AND GENTLEMEN
The title I chose for my address is, "The Canadian Economy and Its
International Aspects". That is what I intended to speak about but as I worked
on it I found so many other things of deep interest--to me at least--that you
will find me ranging over a wide field and not confined within the limits of
We are fortunate in the importance in world affairs which is held by
Canada as a substantial part of the British Empire.
We are also fortunate in that the development of our resources and
our foreign trade has enabled us to enjoy, with the United States, the highest
standard of living in the world.
In discussing our economy I shall first speak of the public debt and
THE NATIONAL DEBT
The net debt of the Federal Government at 31st March, 1939, the
end of its last fiscal year preceding the Second World War, was
During the war years the debt necessarily increased tremendously.
It multiplied more than four times over, rising from $3,000,000,000. to
$13,000,000,000. last year.
In arriving at these figures I have accepted what the Government
describes as "Active Assets"-$485,000,000. in 1939-$5,971,000,000. by the end
of the war-as being worth their face value, but Fin very sceptical as to their
(The total public debt disregarding these assets was
$3,638,321,000. in 1939 and $19,005,656,000. by the end of the war-increased by
We have come to deal with such huge figures that one is apt to
find them difficult to handle. You know a Prince Edward Island girl was sent to
Halifax to take singing lessons and word came back that she was making a name
for herself. She returned to the Island and a concert was held in the church
hall so that she could display her talent. It was well attended and the local
auctioneer, who was full of words, acted as chairman. He opened by saying that
they were gathered together to do honour to Mary after her triumphs in Halifax,
and that she had kindly consented to sing "Ten Thousand Times Ten Thousand".
The accompanist played the opening bars and Mary started but when she came to
the high note she couldn't make it and broke down. The auctioneer was on his
feet instantly and explained that Mary was nervous singing before the home
folks but that she could sing it easily enough and would now do so. The
accompanist began again and Mary tried and failed. This time the chairman said
that this was quite extraordinary but that he was sure she would get through it
all right if they gave her a little rest so they went on with the rest of the
programme and finally lie announced that Mary was now rested and would sing
"Ten Thousand Times Ten Thousand". I am sorry to say that she again failed and
before the auctioneer could say anything further a youth at the back of the
hall called out to him "Why don't you start her at Five Thousand?"
Next I think we might have a look at the amount raised by the
Dominion through taxation.
For the year ended 31st March, 1938, it was $448,652,000.
For 1946, $2,274,858,000.
For 1947, $2,458,520,000.
In the 1938 fiscal year we were able to run the country on $534
In 1946, it took $5,136 millions, including war expenditures.
In 1947, $2,632 millions.
In spite of this Canada had an estimated surplus of $646 millions
for the nine months to 31st December last, which may well be increased to $850
millions or better by the end of the current fiscal year on the 31st of this
One naturally hopes for a great decrease in public expenditure now
that we have a kind of peace or at least a cold war instead of a very hot one
although reading Hansard one finds almost constant suggestions which, if
accepted, would involve the Government in further heavy expenses. We have had
some relief in taxation and may hope for more but we can never get back to
anything like a pre-war basis. We have to service our great debt and the
Government has in the meantime embarked on such a vast social programme--such
an arbitrary forced sharing or redistribution of wealth through taxation--that
our tax load will always be burdensome. No government having embarked on
schemes of social benefits to a large portion of the population is ever likely
to face a serious downward adjustment of such benefits.
In the Analysis of Income and Expenditure published by the
Dominion Bureau of Statistics for the years 1938 to 1946, transfers to persons
from Government, that is government payments to persons for Family Allowances,
War Service Gratuities, Re-establishment and Rehabilitation Grants, Pensions,
Relief, Mothers' Allowances, Prairie Farm Assistance and Grants to Charities,
etc., in fact money given away, amounted in 1938 to $216,00,000; in 1946 it had
risen to one billion dollars. This added to interest on the public debt will
give you some idea of the money that must be raised by taxation, and why we
cannot hope for a return to even comparatively low taxation in future.
Our Foreign Trade is my next topic.
SHORTAGE OF U.S. DOLLARS
The shortage of United States dollars is a world problem. So long
as the exports of the United States annually exceed imports by some
$12,000,000,000 the world will be short of United States dollars to that
extent. So long as the United States has a "favourable" balance with the world
of 12 billion dollars, the world, ex the United States, must have an
"unfavourable" balance with the United States of the same amount.
CANADA-UNITED STATES TRADE
For 1947 Canada's imports from the United States amounted to
$1,974,679,000., and her exports to that country $1,056,579,000., showing an
adverse balance of $918,000,000.
The December debit balance against Canada was down to $34,000,000,
from that in November of $79,800,000,000.
The chief imports were:
Metals, minerals and their products . . . . . . $826,000,000.
Agricultural and vegetable products . . . . . . 156,000.000.
Papers, textiles and their products . . . . . . 140,000,000.
Chemical and allied products . . . . . . 84,000,000.
While our chief exports to the United States were:--
Wood wood products and paper . . . . . . 448,000,000.
Agricultural and vegetable products,
animals and animal products . . . . . . . . . . 312,000.000.
Non-ferrous metals, non-metallic minerals
and their products . . . . . . 134,000,000.
CANADA-GREAT BRITAIN TRADE
The figures for Canada's trade with Great Britain in the pre-war
year of 1938 as compared with 1946 were as follows:
Exports to Great Britain (1938). . . . . . . . $409,412,000.
Imports from Great Britain . . . . . . . . . . 145,009,000.
Net Credit Balance . . . . . . . . . . . $264,403,000.
Exports to Great Britain (1946) . . . . . $597,506,000.
Imports from Great Britain . . . . . . 201,433,000.
Net Credit Balance . . . . . . . . . . . $396,073,000.
A gain of $132,000,000.
It used to be our practice to pay the balance owing to the United
States in dollars, with Sterling owed to us by Great Britain, Sterling being
then readily convertible into dollars.
SETTLEMENT OF TRADE BALANCES
Under conditions such as those which existed before the first war,
and to some extent between the two wars, Canada was able to balance her
international position so long as world trade was largely unrestricted and
national currencies exchangeable and convertible on some recognized and
reasonably predictable basis. There can be no lasting cure for international
financial difficulties without a return to free convertibility of national
currencies at realistic exchange rates. Such a step might be premature at this
juncture while the export capacity of war-torn nations is still far below
normal, but ultimately it is going to be necessary to face up to the fact that
maintenance of exchange rates above their intrinsic values can only be
accomplished at the cost of controls that restrict rather than expand the
volume of trade.
CANADA'S POST-WAR POSITION
The end of the war left Canada with a greatly enlarged capacity to
manufacture goods of all descriptions not only for home consumption but for
export. All would be in the clear again if our capacity for production were
matched by an ability on the part of Great Britain and other countries abroad
which desire and get our goods to pay f or them.
GIFTS AND LOANS
In the past seven years Canada had given or lent to the United
$1,000,000,000 under the War Appropriation Act, 1942.
$1,870,978,000 as Mutual Aid.
$ 700,000,000 War Loan, 1942.
$ 963,000,000 Loan tinder U.K. Financing Act, 1946.
We have also made gifts and loans to other countries, the whole to
enable them to take our production.
When I was in England in November, 1945, attending the Conference
of the Federation of Chambers of Commerce of the British Empire working on
Empire Trade problems I found myself embarrassed in speaking after those who
expressed what I thought to be too much admiration for Canada's generosity. I
tried to make it plain that an important element which entered into the making
of these gifts and loans, quite apart from the nobler instincts of it all, was
that it very well suited the Government of Canada to keep its people fully
employed and happy, through the creation of these goods even though to a great
extent Canada herself was paying for them. We were lifting ourselves by our own
boot straps. This is the only metaphor I am going to use as they are tricky
things to handle-"kittle-cattle" as the Scots would say. A Winnipeg Professor
was speaking to the Canadian Club of Montreal some years ago on the use or
misuse of the English language. His best example of a mixed metaphor was that
of a political orator who had said, "When the chickens come home to roost that
will be a horse of another colour!" An inept metaphor is often amusing. I asked
one of our representatives in Parliament why his party didn't come out for the
removal of the ban on the importation, manufacture and sale of margarine. He
replied that "Margarine was too hot a potato!"
To return to my visit to England--I went on to say that we were
submitting to a high rate of taxation on incomes of persons and corporations
and having a great deal of the proceeds of such taxation distributed by the
Government to the farmers, the labourers, and the industrialists in the form of
payment for goods exported, and not paid for, from abroad.
PERSONAL INCOMES AND EXPENDITURES
Now let us look at the personal incomes and expenditures of
Canadians. Most of us have a natural curiosity about how others get and spend
their incomes, and here's what happened in Canada in 1946:
Salaries, wages, etc., brought in ..... $4,968,000,000
(as against $2,500 000,000 in 1938)
Military pay and allowances ..... 315,000,000
(down from a peak of $1,132,000,000 in 1945)
Income from agriculture and other unincorporated business ..
(it was only $800,000,000 in 1938)
Interest, dividends and rents of persons ..... 833,000,000
Payments to persons by Government, etc ..... 1,116,000,000
A Total of $9,383,000,000
That's how we got it and this is how we disposed of it
We paid in direct personal taxes . . . . . . . . $ 781,000,000
This left us with a total sum to spend of 8,602,000,000
We bought in goods . . . . . . . . . . . . . . . . . .
Here are some of the interesting details
Food . . . . . . . . . . . $1,948,000,000 or about 36 1/2 %
Tobacco and Liquor . . 803,000,000 or about 15%
Gasoline and Lubricants 200,000,000 or about 3 3/4 %
Fuel 260,000.000 or about 5%
Clothing and furnishings, etc . . 1,190,000,000 or about 22 1/4
Automobiles . . . . . . . . . 88,000,000 or about 1 1/2 %
Furniture .. ....... 103,000,000 or about 2%
Household Appliances. 133,000,000 or about 2 1/2 %
Drugs, Stationery, etc 215,000,000 or about 4%
Jewellery . . . . . . . . . . . . 71,000,000 or about 1 1/4 %
Miscellaneous items . . 332,000,000 or about 6 1/4 %
We paid for services of all sorts $2,158,000,000. Here's where it
In other words out of every dollar we spent about
Housekeeping . . . . . . . . . . . $ 903,000,000 42 cents
Attire and personal appearance 127,000,000 6 "
Medical care and death expenses 302,000,000 14 "
For education 35,000,000 2 "
Recreation . 148,000,000 7 "
Transportation 297,000,000 14 "
Communications ......... 98,000,000 4 "
Miscellaneous uncassified . . . . 248,000,000 11 "
We have done ourselves pretty well, but, nevertheless, we had over
$9,383,000,000. National Income and saved $1,107,000,000.
GROWTH IN BUSINESS
Marked changes have taken place in our business activities in the
past ten years.
Retail sales have grown from about $2,400 millions in 1938 to over
$5,000 millions in 1947, bank debits have increased from $30,924 millions to
over $75,000 millions. Our exports of newsprint have jumped from just under two
and a-half million tons valued at $64,000,000, to nearly four and a-half
million tons worth $356,000,000. Our output of electric power has risen from
just over 26 million to more than 40 million kilowatt hours. We produced nearly
30 million barrels of flour in 1947, compared with less than 14 million in
1938. Pig iron production last year was 1,840,000 tons against 705,000 tons ten
years previously. Canada's mineral production last year reached a high record
of $620 millions. These figures do not give the complete story but they
indicate progress and encourage Canadians to look forward confidently and not
THE INFLATION PROBLEM
Our greatest immediate problem is that of inflation. Until this is
solved, neither Canadian business nor Canadian citizens can know any real
stability or security.
Yet the solution is becoming increasingly clear. It is production,
and production alone, that in the end will provide inflation with its
sufficient answer. Only when the amount of goods is brought more nearly up to
the demand will prices find their proper and reasonable level.
There is no other way. And there can be only anxiety over the
continuing popular tendency to look to some method or plan, some control or
regulation, which may adjust prices without increased production and without
the greater effort that increased production requires. The re-imposition of
regulations or controls, so far from providing an effective solution to
inflation, would more likely only delay or discourage the higher productivity
which is so urgently needed.
TAXES VS. INCENTIVES
Some economists in this country, as in other lands, have
recommended that inflation be counteracted by high taxes.
Surely this is a mistaken approach. For high taxes depress
incentives; and if production is to be stimulated, the extra effort must
receive the extra reward. To expect people to work harder, and to be
practically penalized for doing so, is not to deal in the realities of human
nature in a free society.
For this reason, it would seem more realistic, and therefore more
effective, if taxation upon earnings were lowered, so that the greater impetus
might be given to the added effort. Since we are dealing with human nature in a
free society, it must be remembered that extra effort is not easy. "Overtime"
in the widest sense of the word, and in all types of work, is not the line of
least resistance but of greatest resistance. If high taxation diminishes to
negligible proportions the reward for each degree of extra effort, the
pleasures of idleness and of recreation and of "taking it easy" will be found
to compete very effectively with the will to work. It was the old saying that
it was well to scorn delights and live laborious days. But a policy of high
taxation lends its encouragement to seeking delights and scorning laborious
One of the incentives for earning extra income is to have money to
save. But this incentive is being discouraged in several ways.
The rates of interest have been so lowered by the Government's
easy money policy that the possibility of providing a sizeable income from
savings (which was quite feasible some years ago) is now beyond the power of
most people. It would appear from the action taken on 5th January, and again
more recently, in allowing Dominion Government Bonds to fall somewhat in market
price, that the Government is pursuing less rigorously its low interest
The value of savings, and therefore the incentive to save, is
still more seriously lowered by succession duties. The theory advanced to
justify succession duties is questionable. It holds that a certain person or
persons, as legatee of an estate, are about to come, by a fortuitous event,
into possession of the principal or income of assets which they did not create.
Consequently, it is argued that it is no great hardship for them if the
government claims part of the estate by the imposition of succession
But it is often hard for the family of a man which was dependent
upon him for support, and which because of age, health, educational needs, or
other reasons, is dependent upon his estate after his death, to regard
themselves as merely inheriting a windfall, of which the Government may
fittingly claim a large portion. More often than not when a man dies his wife
and children have to change their way of living and usually have a hard time
getting along on such investments and life insurance as may have been left to
Succession duties are a form of double taxation. Estates created
during the last 30 years are in most cases the result of savings from part of
the income left after income taxes have been paid. That is to say, estates are
built up out of tax-paid money. For this reason in claiming succession duties
the Dominion Government is not entering a new field of taxation, but is in fact
taxing the same money twice.
Now that the Government has introduced a bill to rewrite the
Income Tax Act, it is opportune to suggest that the effect of heavy taxation
upon all extra effort and productiveness should be seriously reconsidered. As
for succession duties, the most obvious means of reducing this burden is for
the Dominion Government to retire from this field of taxation. The Dominion
Government inaugurated its tax on estates only some seven years ago (in 1941),
many years after the provinces had enacted succession duty legislation. In the
year ending March 31, 1946, the Dominion Government collected twenty-one and
a-half million dollars in succession duties. Through this is a large sum to be
taken from heirs, in addition to what has already been paid in income taxes and
in provincial succession duties, it is a comparatively small sum in the total
revenue of over three billion dollars raised by the Dominion Government in the
same year. If the Dominion were to retire from the field of succession duties,
it would not suffer a serious loss of revenue, but the relief that would be
granted thereby would give new incentive to the earning citizen and a new
security to those dependent upon him.
Before concluding I must give Free Enterprise an innings. It is
the foundation of the prosperity of Canada and the United States. Under it
these countries have attained the highest standards of living in the history of
the world and under it alone is there strong hope of still higher standards.
And this is the chief element in happiness. The pursuit of happiness is a
legitimate national aspiration--life, liberty and the pursuit of happiness--is
a grand phrase. It ties liberty to happiness, and the only liberty in political
economy is that enjoyed under a system of Free Competitive Enterprise.
Thurman Arnold, whose duty it was, at one time, to enforce the
laws of the United States against monopolies and combinations in restraint of
trade, and who was thoroughly informed as to the methods of operation of the
capitalistic system has since gone on record as follows:--
"Free capitalistic economy not only insures freedom of thought and
action, but is the most efficient way of producing and distributing the wealth
of the nations for the good of all."
The Editor of the Letter-Review published in Fort Erie said in
December, speaking of the grave crises in France and Italy:--
"It remains our opinion that the Communists will not attempt and
could not succeed in actual revolution. In both countries, however, there is
exactly what we have in Canada-the tremendous mass of public opinion,
economically illiterate, convinced that it is possible to have, at the same
moment, political liberty and totalitarian control of economic affairs."
I am sorry to end with a word of warning but I think that we are
facing a marked recession in business and should be preparing for it.
Canada's financial position also is difficult from the short-term
view but the longer future is full of promise for us whose lives have indeed
fallen in pleasant places.