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Economic history of Canada
Canadian history has long tended to be focused on economics. In part this is because Canada has had far fewer political upheavals or military conflicts than other societies. This was especially true in the first half of the twentieth century when economic history was overwhelmingly dominant. Many of the most prominent Canadian historians from this period were economic historians, such as Harold Innis, Donald Creighton and Arthur R. M. Lower
Scholars of Canadian history were heirs to the traditions that developed in Europe and the United States, but frameworks that worked well elsewhere often failed in Canada. The heavily Marxist influenced economic history that dominates Europe has little relevance to most of Canadian history. A focus on class, urban areas, and industry fails to address Canada's rural and resource based economy. Similarly the monetarist school that is dominant in the United States also has been difficult to transfer north of the border.
The study of economic history in Canada became highly focused on economic geography and for many years the dominant school of thought has been the Staples Thesis. This school of thought bases the study of the Canadian economy on the study of natural resources. This approach has since also become used outside of Canada in Australia and in many developing nations.
Before the arrival of Europeans the First Nations of what would become Canada had a large a vibrant trade network. Furs, tools, decorative items, and other goods were often transported thousands of kilometres, mostly by canoe thorough the many rivers and lakes of the region.
The early European history of the Canadian economy is usually studied through the Staples Thesis which argues the Canadian economy developed through the exploitation of a series of staples that would be exported to Europe.
The earliest European settlements in Canada were to take advantage of the fisheries of the East Coast, especially the Grand Banks off Newfoundland. Boats from France, Portugal, Spain, and Great Britain would traverse the Atlantic fish for a summer and then return laden with fish. The trade was originally dominated by fishers from southern Europe. In Catholic countries demand for fish was much greater. It was from the northern nations of Britain and France that the first settlers came, however. Spain, Portugal and the south of France had abundant supplies of salt because in the warm climes it was a simple matter to evaporate seawater. They would thus bring barrels of salt with them to the fishing grounds salt the fish aboard ship and return to Europe never having touched land. In the colder and wetter climate of the British Isles and northern France salt was in scarce supply. To preserve the fish they needed to be dried by hanging them on large fish racks on the coast of Newfoundland and Nova Scotia. These drying stations were active for months of the year and eventually permanent settlements grew up around them. These small settlements totalled only a few thousand people, but they were many of the first European arrivals in North America.
The fur trade is often considered to be the most important factor in the population of the Canadian interior. In Europe beaver fur had become especially fashionable and the forests of North America were home to many of the creatures.
This trade closely involved the Native peoples who would hunt the beavers and other animals and then sell their pelts to Europeans in exchange for guns, textiles, and luxury items like mirrors and beads. Those who traded with the Native were the voyageurs, woodsmen who travelled the length of North America bring pelts to the ports of Montreal and Quebec City.
The French dominated the trade through the New France, the Ohio Valley , and west into what would be Manitoba and Saskatchewan. In an attempt to break the French monopoly the English began trading through Hudson Bay and the Hudson's Bay Company built an elaborate network of trading posts and forts.
There was fierce rivalry between the French and English and their respective Native allies. Even when the two nations were at peace fierce fighting would occur in the interior.
The great disadvantage of the fur trade for the Canadas was that it did not encourage settlement. The fur trade only needed a few highly skilled workers. Also the fur trade required more tonnage of goods to be shipped to North America than going the other way. This meant that there was no excess space on the westward voyage and passage costs were high. Unlike the United States where agriculture had become the primary industry, requiring a large labour force the population of what would be Canada remained very low.
This was a great benefit to the British in their struggles with the French. Over the course of the eighteenth century the French possessions were gradually seized by the British until in 1759 all of New France was conquered. The continued dependence on trade with Europe, also meant that the northern colonies were far more reluctant to join the American Revolution, and Canada thus remained loyal to the British crown.
In the early nineteenth century timber became the dominant staple commodity. Timber for the domestic market had long been a small industry in the colonies, but it was changes in Europe in the early nineteenth century that created a large export market. Great Britain had exhausted its supplies of quality timber by the start of the eighteenth century. The great oaks that had built the British Navy were all but gone. Especially problematic was the lack of very large trees that could supply great masts, a necessity for both its war and merchant shipping. A thriving timber importing business had thus developed between Britain and the Baltic region. This trade was very unpopular for both economic and strategic reasons.
For much of the eighteenth century Britain had encouraged the timber trade with the New England colonies. The American stands of timber were primarily located along the small, but easily navigable rivers of New York and Massachusetts. These systems were fairly quickly exhausted of good stands of timber and even without the American Revolution new sources would have had to of be found by the start of the nineteenth century.
Thus the British looked northwards to the colonies that had remained loyal. The industry became concentrated in three main regions. The first to be exploited was the Saint John River system. Trees in the still almost deserted hinterland of New Brunswick were cut and transported to Saint John where they were shipped to England. This area soon could not keep up with demand and the trade moved to the St. Lawrence River where logs were shipped to Quebec City before being sent on to Europe. This area also insufficient and the trade expanded westward, most notably to the Ottawa River system, which by 1845 provided three quarters of the timber shipped from Quebec City. The timber trade became a massive business. In one summer 1200 ships were loaded with timber at Quebec City alone, and it became by far British North America's most important commodity.
The cutting of the timber was done by small groups of men in isolated camps. For most of the nineteenth century the most common product was square timber, which was a log that had been cut into a square block in the forest before being shipped. The timber was transported from the hinterlands to the major markets by assembling it into a raft and floating it downstream. Because of the narrower and more turbulent waters that one would encounter on the Ottawa River system, smaller rafts, known as "cribs," were employed. On the St. Lawrence, however, very large rafts, some up a third of a mile in length would be employed. The most common type of tree harvested was white pine, mostly because it floated well. Oak, which does not float, was in high demand but was much harder to transport and oak timbers needed to be carefully integrated into the raft if they were to be carried to market.
In 1842 the British preferential tariffs were lifted; however, the transatlantic trade still remained a profitable one. Demand in Britain remained high, especially for railway ties. Improved ships and new technologies, especially the steam engine, allowed the trade to continue to prosper. After the middle of the century the trade in timber began to decline, being replaced by trade in cut lumber and the pulp and paper industry.
One of the most important side effects of the timber trade was immigration to British North America. Timber is a very bulky and not a particularly valuable cargo. For every ship full of British manufactured goods dozens would be needed to carry the same value of timber. There was no cargo coming from the British Isles to Canada that could take up as much room on the return voyage. Exporting salt filled a few ships, and some vessels were even filled with bricks, but many timber ships made the westward voyage filled with ballast. The population of Canada was small and the lack of wealth in the area made it an unattractive market.
There was, however, one cargo that the ship-owners did not have to worry about finding a market for in the sparsely populated New World: people. Many of the timber ships turned to carrying immigrants for the return voyage from the British Isles to fill this unused capacity. Timber ships would unload their cargo and sell passage to those desiring to emigrate. During the early nineteenth century, with the preferential tariff in full effect, the timber ships were among the oldest and most dilapidated in the British merchant fleet, and travelling as a passenger upon them was extremely unpleasant and dangerous. It was, however, very cheap. Since timber exports would peak at the same time as conflicts in Europe, such as the Napoleonic Wars, a great mass of refugees sought this cheap passage across the Atlantic.
In later decades after the repeal of the tariff and the increase of competition, the quality and safety of the ships improved markedly. Since the travellers would bring along their own food and bedding the trade was an extremely easy one to operate. All that was required was a few advertisements, generally in Irish newspapers, and the installation of bunks along the side of the hold. An average timber ship could thus carry about 200 passengers. Even with only a fraction of the hundreds of timber ships carrying passengers, this created an unprecedented influx of new inhabitants. By comparison it has been calculated that the trade between New France and Europe only included an average sixty-six immigrants per year over the lifetime of that colony.
The timber trade did not only bring immigrants to British North America, it also played a very important role in keeping them there as well. While many of those disembarking from the timber ships would head south to the United States, many others would stay in British North America. In large part this was because of the employment that could be found in the timber trade. At the peak of the trade in the 1840s 15 000 Irish loggers were employed in the Gatineau region alone. This when it had been only a few years before that the population of Montreal was only ten thousand. Similar situations could be found in the other centres of the timber trade.
Settlement of Upper Canada
The timber industry also created large peripheral industries, the most important of these being agriculture. Unlike the fur trade the timber trade saw large numbers of men in one location for a substantial period of time. The lumber camps, and the lumber towns needed to be supplied with food and other provisions. In the early years of the trade much of the food, mostly barrels of pork, would be shipped from the United States. Mostly coming from around the Cleveland area shipping costs were high creating a market for locally produced goods. As the loggers pushed ever westwards farmers would follow to take advantage of this captive market. Some of these farms would fail after the loggers moved on, but many found new markets and became permanent settlements. This process formed the basis of many communities in what is now Ontario.
To encourage the settlement of the best land in the region the government created the Canada Company. It was given much of the land in Southwestern Ontario and tasked with selling it off to immigrants. It was successful in this, but it also became deeply unpopular for its monopolization of the land. This was an important trigger of the 1837 Rebellions.
To aid settlement and the timber trade the nineteenth century saw a spree of canal building projects across the region. Canals could not only circumvent rapids and falls, but they could connect previously unlinked parts of the river system. They also made transport of goods far easier and safer. Canals were created for the timber trade, the transport of wheat, and also for military reasons.
Canals such as the Rideau Canal, the Welland Canal, the Trent-Severn Waterway were massive engineering projects, and huge expenditures. The government of Upper Canada was all but bankrupted by these projects, and this was an important factor in the merging of Upper Canada with the still solvent Lower Canada into one colony in 1849.
The repeal of the British Corn Laws and of preferential treatment for the British colonies led many in British North America to realize that the motherland could no longer be counted upon economically. In 1854 the Canadian colonies signed Canadian-American Reciprocity Treaty with the United States to try to ensure access to the American market. This treaty was cancelled in 1866, however, leaving the colonies once again adrift.
The railways were also an important factor. The Province of Canada had again nearly bankrupted itself by promising unwise subsidies to railway companies. The Maritime colonies wanted a railroad, but as disunited as they were, building one would be all but impossible.
Both the Maritime colonies and the Province of Canada desired access to the large and unexploited western hinterland. They hoped that if these areas were developed they would become a market for their manufactured goods, and provide exports for the eastern ports.
For these reasons and others the colonies of Nova Scotia, New Brunswick and the two Canadas agreed to merge into one Dominion in 1867. While in name it was a confederation, the new constitution, the British North America Act outlined a strongly centralized federation. The federal government had control of most of the taxation power, and was responsible for the largest expenditures, railroads, canals and the military. The provinces were given exclusive jurisdiction over what at the time seemed merely local or minor matters such as health care and education.
In 1871 British Columbia, which was nearing bankruptcy due to railway construction agreed to join the union in exchange for an intercontinental railroad. Prince Edward Island joined in 1873 for similar reasons, because the government had again emptied the treasury by building railroads.
See also: Canadian Confederation
The National Policy
The first Prime Minister of the new nation was John A. Macdonald and he outlined what would be Canada's economic program for decades. This would be the National Policy a system of protective tariffs that would encourage the development of Canadian manufacturing. This would be combined with great railway building projects such as the Canadian Pacific Railway to link the east with the west and the Intercolonial Railway to link central Canada with Atlantic Canada.
Canada had traditionally been committed to free trade and had only had one experiment with a protective tariff with the Cayley-Galt Tariff of 1858. This policy has long been controversial as it is seen to have favoured Central Canada at the expense of the Maritimes and the West.
See main article: National Policy
The years after Confederation saw the once buoyant BNA economy sour, and event some blamed on union or government railway policy, but was more likely caused by the Long Depression that was effecting the entire world. Demand for Canadian resources slumped, and protectionist policies in the United States and Europe hurt Canada's trade.
The period also saw little immigration to Canada. Despite efforts to settle the west including the Dominion Lands Act of 1871, few immigrants were willing to settle on Canada's colder and dryer prairies when open land was still plentiful in the States. In the thirty years after Confederation Canada actually saw a net out flow of migrants, as a large number of Canadian relocated to the United States.
In the early part of the nineteenth century the economies of the Canadian Maritimes were, by some measures, the most industrialized, and prosperous in British North America. The 1850s and 1860s were especially prosperous. By the start of the twentieth century, however, they were far poorer than the rest of the country, and remain so to this day. It has been said that the provinces never emerged from the post-Confederation slump. See Economy of the Martimes for a full discussion of this issue.
The economy of the rest of the country improved dramatically after 1896 and from that year until 1914 Canada had the world's fastest growing economy. The west was settled, the population grew quickly, so that by 1900 Prime Minister Wilfrid Laurier could predict that the twentieth century would be Canada's century as the nineteenth was the United States'.
The cause of this boom is fiercely debated. Whether the settlement of the west was a cause of effect of the boom is one of the most important issues. Globally the economy was improving with the end of the Long Depression. The last semi-humid farmland in the United States was exhausted left Canada with the best unexploited farm land in North America. Technological changes from the steel plow to combine harvesters played an important role, but one perhaps the most important development was the developing of dry farming that allowed farmers to profitably grow wheat on the semi-arid southern prairies.
The most noted expansion was in western Canada, but at the same time Central Canada was undergoing a period of significant industrialization.
While western and central Canada boomed during the pre-World War I years the economies of the three Maritime provinces grew far more slowly. There is also much debate over the cause of this, but its consequence was a growing disaffection with Confederation in the east, manifested by the Maritime Rights movement.
The First World War and the Roaring '20s
Canada played an extraordinarily large role in the First World War relative to its size. It sent over hundreds of thousands of troops, and was also the granary and arms producer for the allied side. This led to a further boom on the prairies as wheat prices skyrocketed. The rest of the country, even the Maritimes, benefited from an increase in manufacturing.
The immediate post-war years saw a short, but severe, recession as the economy readjusted to the end of wartime production. By 1921 the Canadian economy was back on its feet and rapidly expanding. The 1920s saw an unprecedented increase in the standard of living as items that had been luxury goods such as radios, automobiles, and flush toilets became common place across the nation. While in the United States the boom of the 1920s had petered out by mid-decade it continued in Canada well into 1928.
The Great Depression
By some measures Canada was the nation hardest hit by the Great Depression. When the American economy began to collapse in the late 1920s the close economic links and the gold standard meant that the malaise quickly spread across the border.
By 1933 30% of the labour force was out of work, and one fifth of the population became dependent on government assistance. Wages fell as did prices. Gross national expenditure had declined 42% from the 1929 levels. In some areas the decline was far worse. In the rural areas of the prairies two thirds of the population were on relief. Population growth contracted markedly as immigration slowed, and birth rates fell. Crime rates increased, and a new class of unemployed vagrants was created.
Unlike in the United States that had pulled itself out of the Depression thanks to Franklin Roosevelt's New Deal the Canadian economy remained depressed far longer, not passing 1929 levels until 1939, with the outbreak of the Second World War.
Main article The Great Depression in Canada
The Second World War and the boom years
The turn around brought about by the command economy imposed at the beginning of the Second World War was immense. Unemployment virtually disappeared by 1940 as soldiers were recruited and factories turned to war production. The effort was mostly paid for by war bonds.
The twenty-five years after the war saw an immense expansion in the Canadian economy. Unemployment remained low and the end of wartime production was quickly turned over to making consumer goods. Canada built an impressive welfare state with publicly-funded health care, the Canada Pension Plan, and other programs.
During this period the Canadian economy became much more closely integrated with the American one as tariff barriers fell and trade agreements like the Autopact were signed.
Canada experienced an especially deep recession in the late 1980s and early 1990s. This led to massive government deficits, high unemployment, and general disaffection. The poor economy led to the overwhelming rejection of the Progressive Conservative Party in the 1993 election, and the fall of other governments such as Bob Rae's in Ontario. The poor economy also increased support for sovereignty in Quebec. An option that was just barely rejected in the 1995 Quebec referendum.
A brief recovery in 1994 was followed by a return to recession in 1995-1996. Since that date the Canadian economy has improved markedly, in step with the boom in the United States. Once referred to as a fiscal basket-case, Canada has become a model of pecuniary stability as the government has posted surpluses for many years.
The recession brought on in the United States by the collapse of the dot com bubble beginning in 2000, hurt the Toronto Stock Exchange but has affected Canada only mildly. It is one of the only times Canada has avoided following the United States into a recession.
- A.W. Currie Canadian Economic Development 1st ed. 1942; 4th ed. 1963.
- W.T. Easterbrook and H.G.J. Aitken. Canadian Economic History (Toronto, 1988)
- William L. Marr and Donald G. Paterson. Canada: An Economic History (Toronto, 1980)
- Kenneth Norrie, Douglas Owram, and J.C. Herbert Emery. A History of the Canadian Economy 3rd ed. (Toronto, 2002)
- Richard Pomfret. The Economic Development of Canada 2nd ed. (Scarborough, Ont., 1993)
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