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 THE CANADIAN ECONOMY
IN THE GREAT DEPRESSION
CARLETON LIBRARY SERIES

The Carleton Library Series, funded by Carleton University under the

general editorship of the dean of the School of Graduate Studies and
Research, publishes books about Canadian economics, geography,
history, politics, society, and related subjects. It includes important
new works as well as reprints of classics in the fields. The editorial
committee welcomes manuscripts and suggestions, which should
be sent to the dean of the School of Graduate Studies and Research,
Carleton University.

192 The Blacks in Canada: 200 The Politics of Development

A History (Second edition) Forests, Mines, and Hydro -
Robin Winks Electric Power in Ontario,
795 A Disciplined Intelligence 1849-1941
Critical Inquiry and H.V. Nelles
Canadian Thought in 201 Watching Quebec
the Victorian Era Selected Essays
• A.B. McKillop Ramsay Cook
194 Land, Power, and 202 Land of the Midnight Sun
Economics on the Frontier A History of the Yukon
of Upper Canada Ken S. Coates and William
John Clarke R. Morrison
195 The Children ofAataentsic 203 The Canadian Quandary
A History of the Huron Harry Johnson
People to 1660 (New edition)
Bruce G. Trigger 204 Canada and the Cost
196 Silent Surrender of World War II
The Multinational The International Operation
Corporation in Canada of the Department of
Kari Levitt Finance, 1939-1947
197 Cree Narrative Robert B. Bryce
Expressing the Personal Edited by Mathew Bellamy
Meanings of Events 205 Lament for a Nation
Richard J. Preston George Grant
198 The Dream of Nation (Anniversary edition)
A Social and Intellectual 206 Confederation Debates
History of Quebec in the Province of
Susan Mann Canada, 1865
199 A Great Duty P.E. Waite
Canadian Responses to (New edition)
Modern Life and Mass 207 The History of Canadian
Culture, 1939-1967 Business, 1867-1914
L.B. Kuffert R.T Naylor
208 Lord Durham 's Report 213 Health Insurance and
Based on the Abridgement Canadian Public Policy
by Gerald M. Craig The Seven Decisions That
(New edition) Created the Canadian
209 The Fighting Health Insurance System
Newfoundlander and Their Outcomes
A History of the Royal Malcolm G. Taylor
Newfoundland Regiment 214 Inventing Canada
G.W.L. Nicholson Early Victorian Science
210 Staples and Beyond and the Idea of a
Selected Writings of Transcontinental Nation
Mel Watkins Suzanne Zeller
Edited by Hugh Grant 215 Documents on the
and David Wolfe Confederation of Canada
211 The Making of the G.P. Browne
Nations and Cultures 216 The Irish in Ontario
of the New World A Study in Rural History
An Essay in Comparative Donald Harman Akenson
History 217 The Canadian Economy
Gérard Bouchard in the Great Depression
212 The Quest of the Folk (Third edition)
Antimodernism and A. E. Safarían
Cultural Selection in
Twentieth-Century
Nova Scotia
Ian McKay
This page intentionally left blank
A. E. Safarían

The Canadian Economy

in the Great Depression
THIRD EDITION

The Carleton Library No. 217

McGill-Queen's University Press

Montreal & Kingston • London • Ithaca
© McGill-Queen's University Press 2009
ISBN 978-0-7735-3702-6 (cloth)
ISBN 978-0-7735-3713-2 (pbk)

Legal deposit fourth quarter 2009

Bibliothèque nationale du Québec

Printed in Canada on acid-free paper that is 100% ancient forest free

(100% post-consumer recycled), processed chlorine free

First published in 1959 by the University of Toronto Press. First CLS edition
published in 1970 by McClelland and Stewart Limited.

McGill-Queen's University Press acknowledges the support of the Canada

Council for the Arts for our publishing program. We also acknowledge the
financial support of the Government of Canada through the Book Publishing
Industry Development Program (BPIDP) for our publishing activities.

Library and Archives Canada Cataloguing in Publication

Safarian,A.E., 1924-
The Canadian economy in the Great Depression / A.E. Safarían.

(The Carleton library; no. 217)

Includes bibliographical references and index.
ISBN 978-0-7735-3702-6 (bnd)
ISBN 978-0-7735-3713-2 (pbk)

1. Depressions - 1929 - Canada. 2. Canada - Economic conditions -

1918-1945. I. Title. II. Series: Carleton library; no. 217

HC115.S24 2009 330.971'062 C2009-905542-2

Contents

Preface to the 2009 Carleton Library Edition xi

Preface to the 1970 Carleton Library Edition xvii
Preface xviii
1 Introduction 1
2 Antecedents of the Depression of the Thirties 19
3 The Downswing from 1929 to 1933 72
4 The Beginning of Recovery, 1932-3 109
5 The Recovery from 1933 to 1937 137
6 Exports and Domestic Investment in the Recovery 161
7 Recovery in Selected Industries 194
8 International Comparisons of Recovery 220
9 Conclusion 232
Appendix A: Selected Statistics 243
Appendix B: Revised Series for Gross Domestic
Investment 249
Bibliography 252
Index 259
Tables

1 Growth in the Economy, 1900-13 22

2 Selected Economic Series, 1913-22 28
3 Gross Domestic Investment by Industry, 1926-9 35
4 Quinquennial Estimates of Capital Formation
in Canada, 1901-30 36
5 Selected Statistics on Utilities, 1900-30 48
6 Selected Statistics on Automobiles, 1905-30 53
7 Selected Data on Housing, 1921 -30 56
8 Annual Average Completions of Dwellings
per Decade, 1881-1940 60
9 Five-Year Averages of Volume of Output and
Other Series, 1890-1939 63
10 Long-Run Percentage Change in Volume of Output
and Other Series, 1890-1939 64
11 Changes in Gross National Expenditure, 1929-33 77
12 Price Changes in Canada, 1926-37 82
13 Index Numbers of Selected Interest Rates, 1929-37 85
14 Disposable Income and Consumption, 1929-37 86
15 Fluctuations in Industrial Production and
National Income, Selected Countries, 1929-37 98
16 Comparative Indexes for Canada, the United States,
and the United Kingdom, 1933 and 1937 100
17 Comparison of the Decline in Gross National
Expenditure, Canada and the United States, 1929-33 103
18 National Income by Industry, Canada and
the United States, 1929-37 106
19 Industrial Activity in Selected Countries, 1932-3 115
20 Selected United States Series in 1933 122
21 Inventory Investment, 1928-37 126
22 Ratio of Stocks to Production in the Manufacturing
Industries of Canada, 1929-37 128
23 Percentage Relation of Book Value of Manufacturing
Stocks to Gross Value of Output by Industry,
1929-34 129
24 Absolute Change in New Investment in Durable Assets
by Significant Groups, 1931 -4 134
25 Engineering Construction, 1929-37 135
26 Changes in Gross National Expenditure, 1929-39 144
27 Expenditures on Relief Works and Total Relief,
1930-7 155
28 Government Revenue and Expenditure, 1929-37 158
29 Absolute and Relative Changes in Exports by Areas,
1928-37 162
30 Selected Merchandise Exports as a Percentage of Total
Exports, Including Net Non-Monetary Gold, 1926-9
and 1933-7 164
31 Price and Volume Indexes for Exports and Imports,
and Terms of Trade, 1926-37 166
32 Crude Marginal Propensities, 1927-37 173
33 Capital Employed and Employees in Selected
Industries, 1937 177
34 Absolute Change over Previous Year in Investment
Components, 1934-7 179
35 Private Investment in Durable Physical Assets
by Industry, 1926-37 180
36 Selected Data on Expenditures by Governments and
Government Agencies, 1929-37 181
37 Private Investment in Durable Assets minus Capital
Consumption Charges, 1926-39 182
38 Analysis of Corporation Profits, 1929-37 186
39 Selected Indexes Reflecting the Cost of Investment,
1929-37 190
40 Selected Statistics on Canadian Wheat, Crop Years 1926-7
to 1937-8 196
41 Selected Statistics on Agriculture, 1926-37 200
42 The Newsprint Industry in Canada, 1924-38 202
43 Selected Statistics on the Mineral Industries, 1929-37 206
44 Production and Exports of Selected Metals, 1926-37 207
45 Electric Power and Other Utilities, 1926-37 210
46 Selected Statistics on Automobiles, 1926-37 215
47 Selected Data on Housing, 1929-37 218
48 Comparison of the Recovery in Gross National
Expenditure, Canada and the United States,
1929 and 1937 223
Appendix A
49 Gross National Expenditure in Current Dollars,
1926-37 242-3
50 National Income by Industry, 1926-37 244-5
51 Balance of Payments between Canada and
Other Countries, 1926-37 246-7
52 Seasonally Adjusted Indexes of Economic Activity,
by Quarters, 1932 and 1933 248
This page intentionally left blank
Preface to the 2009 Carleton
Library Edition
This book examines why the economic decline in Canada in the early
1930s was so severe and the recovery to 1937 so incomplete, both
absolutely and relative to our main trading partners. There are several
reasons why its re-issue at this time is appropriate.
First, there is an intrinsic and growing interest in the Great
Depression of the 1930s. In the two-hundred-year recorded history of
business fluctuations, no other depression, with the possible exception
of one in the late nineteenth century, was as severe or had so many
lasting consequences. There has been a surge of publications on the
thirties, both popular and academic, in recent decades. In part this
interest reflects increasing recognition of the links between business
cycles and many developments in macroeconomics and economic
growth. There are competing schools of thought in this literature that
reflect very different views on the reasons for fluctuations in output
and employment. This edition includes an addition to the 1959 biblio-
graphy that lists some of the more recent literature for Canada and
internationally. From my perspective, particularly significant additions
include Bernanke (2000), Betts et. al. (1996), Friedman and Schwartz
(1963), Kindleberger (1986), and Temin (1988). Gordon (1990) is an
excellent example of the many contributions by the National Bureau of
Economic Research. There is also a short summary of work on business
cycles generally in Romer (2008).
Second, despite all this publication, no other broad study of the
Canadian experience, with a focus also on developments in key sectors,
has appeared in all these years. Fifty years after its original publication,
professors of history and economic history as well as specialists in
business cycles, among others, continue to cite it in their research and
refer their students to it. Since 1987 the federal Public Lending Right
Commission has surveyed annually a number of public and, until
recently, university libraries as a basis for compensating Canadian
writers for the use of their books in Canada's libraries. This book has
always been in all of the libraries surveyed.
Third, the underlying theoretical, historical, and quantitative
approach of this study seems to have some lasting merit as shown in
the conclusions of a very careful theoretical and empirical test of
various explanations of the onset, depth and duration of output collapse
in Canada and the United States in the 1930s (Betts et. al., 1996). The
authors report that "results are consistent with hypotheses such as
those of Fisher (1933), Bernstein (1987) and Safarían (1959), that
emphasize secular factors in explaining the Depression" (p. 35).
The crisis in the financial sector and the business cycle decline
beginning in late 2007 have led to renewed interest in the Great
Depression. The recent credit crisis, which struck first in the United
States, centered on a host of problems that had developed initially in
the sub-prime mortgage market, accompanied by weaknesses in the
"shadow banking system" of largely unregulated investment banks,
private equity, and hedge funds. The unwinding of the large amounts
of leverage involved as loans were called, the accompanying forced
merger or bankruptcy of some major financial institutions, and
instability in financial markets all continued through 2008 and early
in 2009. As the crisis spread, major investment banks in the United
States and the EU became bankrupt, were merged or rescued by
government, or took on commercial banking business to create a
broader creditor base. Falling stock prices and profits and difficulties
in borrowing put huge pressures on firms that had effected mergers
and acquisitions at extremely high prices and now had to manage the
large debts involved during a period of falling sales and profit. Canada
could not escape all of this, but prompt expansionary and rescue
actions in the United States and parts of the EU, plus the remarkable
stability provided by its own banks and in its social security system,
helped cushion the shocks.
It is too early for conclusive analysis of the recent developments,
including the important monetary, fiscal, and regulatory changes that
are under way. The penultimate paragraph of the 1970 preface to this
book noted there were special circumstances in the 1930s but also
some continuing lessons. It is easy to draw up a list of similarities to
and differences from the recent crisis. For example, there was a
financial collapse in both cases, although the reasons and the timing
relative to the business cycle decline were different. A major difference
was the much larger role of agriculture in the thirties, an industry that
suffered a decade of drought. However, the point to be emphasized
here is the ways in which decisions, both private and public, made
well before each crisis greatly influenced the nature and severity of
the declines.
In the case of the 1930s, this study emphasizes several points. One
is the Canadian government's decision, at the end of the nineteenth
century, to disregard the advice of its surveyors not to go north of the
early frost line or south of the drought line in settling the prairie west,
with devastating results for the agricultural sector in the 1930s. The
other is the consequences of the decision to resolve the problems of
railway finance by merging railways (except for the CPR) in 1923 into
the CNR. The government decided to guarantee all the debt of the new
entity, although it was liable for only part of it. The debt was payable
in sterling, US, or Canadian dollars at the option of the lenders, who
were largely located abroad. By 1935 well over $1 billion of the
$2.8 billion net federal debt of Canada was due to railway investments.
This debt limited fiscal and exchange rate policy, in the latter case
because of the effect of any depreciation on the cost of railway debt.
(Running a fiscal deficit was considered heresy at the time and there
was no central bank in Canada until 1937.)
Correspondingly, it is not difficult to point to earlier policy
decisions, or the lack thereof, that greatly influenced the crash of 2007-
08. The repeal of the Glass-Steagall act, which separated commercial
and investment banking, and the failure to regulate the huge expansion
in the largely unregulated shadow-banking system are just two of a
number of earlier policy failures.
As for the private sector, the considerable long-term overexpansion
of investment in a number of major new industries in the 1920s is
documented in this study. With regard to 2007-08, there has been much
comment and some analysis on the insufficient attention paid to risk in
some recent financial innovations that played a major role in the recent
collapse, as well as some serious ethical problems in accounting and
related areas and large bonuses unrelated to performance. Also in
the background to the recent collapse lie the huge imbalances that
developed in the international accounts. One imbalance was the result
of a combination of a loose fiscal and monetary policy in the United
States with large budget and current account deficits. The other, related,
imbalance was due to excessive savings in the Middle East and East
Asia, leading to large current account surpluses invested in U.S.
Treasuries, as well as attempts in China and other countries to help
keep the exchange rate from appreciating.
One pertinent question is what can be done to minimize such
mistakes in the future. In terms of decisions by governments, one can
always argue that they are free to disregard any long-term advice and
are subject to many pressures which can limit optimum decisions. If,
however, there is significant publicity or formal public examination of
those decisions, governments may have to at least listen more closely
to such advice. One approach would be to require that major policy
changes be reviewed or reconsidered at given intervals, as is done
with the Canadian banks and in some other cases. This could create
increased uncertainty and costs for business but the potential gains
from corrected policy might well swamp such costs. Another
possibility is to not only examine policy carefully and openly to start
with but also to initiate it on a small scale regionally or in groups in
order to sort out potential problems before such policies are adopted
for entire populations.
I would like to express my appreciation to the McGill-Queen's University
Press for its decision to re-issue this study and to Philip Gereone and
Joan McGilvray for their help throughout.
A.E. Safarían

August, 2009
University of Toronto

Additional Publications on Economic Fluctuations

in the Thirties

BARBER, CLARENCE L. Inventories and Business Cycles with Special

Reference to Canada. Toronto: University of Toronto Press, 1958.
BERNANKE, BEN. Essays on the Great Depression. Princeton: Princeton
University Press, 2000.
BERNSTEIN, MICHAEL A. The Great Depression: Delayed Recovery
and Economic Change in America, 1929-1939. Cambridge:
Cambridge University Press, 1987.
BETTS, CAROLINE M., BORDO, MICHAEL D., and REDISH, ANGELA "A
Small Open Economy in Depression: Lessons from Canada in the
1930s." Canadian Journal of Economics 29, 1 (February 1996): 1-36.
BRECHER, I. Monetary and Fiscal Thought and Policy in Canada, 7979-
7939. Toronto: University of Toronto Press, 1957.
BRECHER, I., and REISMAN, S. S. Canada-United States Economic
Relations. Ottawa: Royal Commission on Canada's Economic
Prospects, 1957.
BROWN, T. M. Canadian Economic Growth. Ottawa: Staff Study for the
Royal Commission on Health Services. 1965.
CHAMBERS, EDWARD J. "Canadian Business Cycles since 1919."
Canadian Journal of Economics and Political Science 24 (May
1958).
- "Canadian Business Cycles and Merchandise Exports." Canadian
Journal of Economics and Political Science 24 (August, 1958).
CHANDLER, LESTER V. America's Greatest Depression, 1929-1941.
New York: Harper and Row, 1970.
COURCHENE, THOMAS J. "An Analysis of the Canadian Money Supply:
1925-1934." Journal of Political Economy 77 (June, 1969).
DIEBOLD, FRANCIS X., and RUDEBUSH, GLENN D. Business Cycles:
Durations, Dynamics and Forecasting. Princeton: Princeton
University Press, 1999.
EGGERTSSON, GAUTI B. "Great Expectations and the End of the
Depression." American Economic Review 98, 4 (2008): 1476-516.
FISHER, IRVING. "The Debt-Deflation Theory of Great Depressions."
Econometrica 1 (1933): 337-57.
FRIEDMAN, MILTON, and SCHWARTZ, ANNA J. A Monetary History of
the United States. Princeton: Princeton University Press, 1963.
GORDON, ROBERT A., and KLEIN, LAWRENCE R. (eds.). Readings in
Business Cycles. Burr Ridge, IL: Richard D. Irwin, 1965. Prepared
for the American Economic Association.
GORDON, ROBERT J. (ed.) The American Business Cycle. NBER Studies in
Business Cycles, Vol. 5. Chicago: University of Chicago Press, 1990.
HAY, K. A. J. "Early Twentieth Century Business Cycles in Canada."
Canadian Journal of Economics and Political Science 32 (August, 1965).
HAY, K. A. J. "Money and Business Cycles in Post-Confederation
Canada." Journal of Political Economy 75 (June 1967).
KINDLEBERGER, C. P. The World in Depression, 1929-1939. Berkeley:
University of California Press, 1986.
LAMONTAGNE, Maurice Business Cycles in Canada. Canadian Institute
for Economic Policy. Toronto: James Lorimer, 1984.
MACESICH, GEORGE. "The Quantity Theory and the Income Expenditure
Theory in an Open Economy: Canada, 1926-1958." Comment by
Clarence L. Barber and Reply by George Macesich. Canadian
Journal of Economics and Political Science 30, 32 (August 1964).
NATIONAL BUREAU OF ECONOMIC RESEARCH, Book Series Studies in
Business Cycles. Various years.
ROMER, CHRISTINA D. "Changes in Business cycles: Evidence and
Explanations." Journal of Economic Perspectives 13 (1999) 23-44.
- (2008) Business Cycles. In David R. Henderson (ed.) The Concise
Encyclopedia of Economics, 47-51. Indianpolis: Liberty Fund, 2008.
ROSENBLUTH, G. "Changes in Canadian Sensitivity to United States
Business Fluctuations." Canadian Journal of Economics and
Political Science 23 (Nov. 1957). Feb. 1958, XXIV.
- "Changing Structural Factors in Canada's Cyclical Sensitivity, 1903-54."
Canadian Journal of Economics and Political Science 24 (Feb. 1958).
TEMIN, PETER Lessons from the Great Depression. Boston: MIT Press,
1989.
- "Real Business Cycle Views of the Great Depression and Recent
Events: A Review of Timothy J. Kehoe and Edward C. Prescott's
Great Depressions of the Twentieth Century. Journal of Economic
Literature 46, 3 (2008): 669-84.
THOMPSON, R. W. International Trade and Domestic Prosperity:
Canada 1926-38. Toronto: University of Toronto Press, 1970.
URQUHART, M. C, and BUCKLEY, K. A. H. (eds.). Historical Statistics
of Canada. Toronto: Macmillan Company of Canada Ltd., 1965.
WHITE, DEREK A. Business Cycles in Canada. Ottawa: Economic
Council of Canada. Staff Study 17, 1967.
This page intentionally left blank
Preface to the 1970
Carleton Library Edition
Just over forty years ago Canada plunged into a depression of
unusual severity. No other economic decline in this century has
had such a wide and prolonged impact. The failure to reach
anything like full employment for a decade imposed tragic
social, political and economic costs. It also forced some major
changes in attitudes towards the responsibilities of the state.
When it was originally written, this study reflected my dis-
satisfaction with the existing explanations of the depression of
the 'thirties, especially the failure of the economy to return to
full employment until World War IL In particular, it seemed
to me that the period required a broad frame of reference,
along the lines outlined in the original preface to the book.
It also required that the theories one used be subjected to the
available statistical evidence, and that the entire study be placed
firmly in its historical context.
Since the book was written, there has been a renewed inter-
est in the history of the period, and some refinements in the
theory and measurement of economic fluctuations. A selection
from these later studies is listed at the end of the bibliography.
They improve on the timing of the turning points in my analy-
sis, further clarify the interrelation of domestic and external
variables, and contribute a number of other refinements on
monetary variables in particular. No comprehensive economic
study concentrating on the depression of the 'thirties has ap-
peared since this book was originally published, however. The
re-issue of this work should help, therefore, to fill a gap in the
literature of an important period. It is reprinted without altera-
tion.
I have emphasized that the economic collapse of the 'thirties
was unique in many respects, and I would hope that it is now
largely of historic significance. At the very least, governments
now have the knowledge and the means of responding more
positively and strenuously to a decline of similar magnitude.
Yet the depression of the 'thirties continues to command atten-
tion. In part, of course, this is because of the major impact it
had on events and attitudes both then and for many years
afterwards. In part, also, it is because of the painful realization
that we are still far from having learned how to ensure full
employment while achieving other objectives of economic and
social policy. In spite of the special circumstances of the 'thir-
ties, the insights drawn from a study of that period may not be
without interest in the understanding of more recent times.
The failure in aggregate demand was at the root of the prob-
lem, for example, but the effects were complicated by severe
built-in rigidities and structural problems extending over many
years. External influences were important then, as now. Never-
theless, it is clear that the failure of the recovery was due in
good part to the lack of adequate government institutions and
policies even after a decade of depression. No doubt much has*
changed in the Canada of today. Some of our problems and not
a few of our attitudes to their solution will find familiar counter-
parts in the Canada of the 'thirties.
I would like to express my appreciation to the Carleton
Library for making possible the re-issuing of this volume, and
to James Marsh for his editorial assistance.
A. E. Safarían

October, 1970
University of Toronto

Preface

The Canadian experience with economic fluctuations in the

thirties was exceptionally severe. No other period of decline in
this century had quite the same prolonged impact on Canada.
The experience of this country in the thirties appears to have
been more extreme than that of many other countries.
 In this study I have attempted to explain the reasons for
the severity of the decline in economic activity in Canada, and,
more particularly, for the very incomplete nature of the re-
covery up to 1937. Only by the use of a broad frame of refer-
ence can one hope to find satisfactory explanations for such
problems. It has been necessary, for example, to examine
certain developments long before the thirties, since these had
considerable effects in that decade. In addition, while giving
due weight to the important external determinants of Canadian
activity, I have also emphasized the nature of the reaction of
the domestic economy to external forces, and the place of
largely domestic determinants. Finally, the aggregate analysis
has been supplemented by an examination of the experience of
some significant industries, particularly to help explain the
behaviour of domestic investment.
An earlier draft of this study was completed in 1955 under
the supervision of Professor R. A. Gordon, and accepted by
the University of California, Berkeley, as a doctoral disserta-
tion. I owe a considerable debt to Professor Gordon for his
many excellent suggestions on the approach and the content
of this study.
Even a cursory glance at the bibliography will indicate the
extent to which I have drawn on the work of those who have
contributed to the analysis of the thirties. I would like particu-
larly to express my appreciation to the many friends and for-
mer colleagues at the Dominion Bureau of Statistics who sup-
plied me with statistical material and contributed to my under-
standing of that material. Professor V. W. Bladen facilitated
in several ways the completion of the dissertation, and both he
and Miss Elizabeth Chalmers of the University of Toronto
Prçss gave invaluable çditorial assistance with this study. I am
grateful also to the Canadian Social Science Research Council
for a grant-in-aid of research in 1951 and for the publication
of this volume, to the Economists' Summer Study Group at
Queen's University for the opportunity to develop some of the
material on investment, and to the University of Saskatchewan
for typing assistance. My wife has contributed to this study in
a very real way by her aid and encouragement throughout.
This book is dedicated to my mother and father.
A.E.S.

December, 1957
University of Saskatchewan
This page intentionally left blank
 THE CANADIAN ECONOMY
IN THE GREAT DEPRESSION
This page intentionally left blank
CHAPTER ONE

Introduction

The downswings in economic activity which have affected Can-

ada in the last sixty years have often been mild and brief.
Renewed economic expansion and, in 1914, war intervened
before the downswings could become serious. The sharp decline
in prices after 1920 was an exception, but even in this case
another great surge of investment was under way within a few
years.
The thirties were quite unlike any other period in the past
sixty years. For almost every year of the decade the number of
workers unemployed exceeded 10 per cent of the total labour
force, and in 1933 amounted to 20 per cent. The decline in
activity to 1933 was severe, prolonged, and uneven. The re-
covery after 1933 was also uneven, and it was far from com-
plete when World War II began.
The extent of the over-all downswing in Canada can be
seen most simply in the decline of gross national expenditure -
42 per cent from 1929 to 1933.1 Consumer and government
expenditures each fell by less than this, but exports of goods
and services declined by one-half and investment in durable
assets by 82 per cent. As late as 1937, ONE was still 13 per
cent below the 1929 level. Although government expenditure
and export of goods and services had virtually recovered to
their 1929 levels, consumer expenditure was still 14 per cent
below the 1929 level, and investment in durable assets was less
than half the 1929 level.
These developments in the thirties were paralleled by, and
reflected to an important degree, economic fluctuations in other
countries. An economy so closely linked by trade, finance, and
business ties to other countries can hardly hope to escape many
of the effects of a major decline in world economic activity.
Indeed, the decline in economic activity in Canada was one of
the severest in the world, and the recovery among the slowest
relative to the late twenties. Data on national income for seven-
teen countries indicate that the decline in Canada from 1929
to 1932 was exceeded only by that in the United States. The
i Gross national expenditure and gross national product are
henceforth referred to as GNE and GNP. The data in this para-
graph refer to the current dollar series.
2 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

shortfall of national income in Canada in 1937, compared to

1929, exceeded that for all but three countries.
Canadars closest economic ties are with the United States
and the United Kingdom. The over-all downswing in the for-
mer was only a little severer than that in Canada, with the
decline in GNE amounting to 46 per cent in 1929-33. As in
Canada, the subsequent recovery in 1937 still left GNE 13 per
cent below the 1929 level. In the United Kingdom, by contrast,
national income fell only 11 per cent to 1933, and by 1937 it
exceeded the 1929 level by 11 per cent.
In analysing this period, primary emphasis has usually been
placed on the very large role of external factors in the Canadian
economy. Many important factors can be cited to support this
thesis: a large proportion of current production was exported;
many of the most important resources could not be efficiently
exploited unless large surpluses were produced for export, and
alternative markets were not available for these surpluses in
Canada; a large part of domestic investment took place in the
export industries such as transportation which derived a large
share of their income from the export and import trade; and
sudden shifts in the terms of trade could have disastrous effects
on incomes, the balance of payments, and monetary conditions.
This reasoning was extended to foreign transactions generally,
particularly to heavy imports of capital to finance investment,
and to the psychological effects of close ties with important
trading partners through affiliated companies and financial
markets.
Such considerations go a long way toward explaining econ-
omic fluctuations in Canada and will be given a great deal of
weight in this study. They do not fully account, however, for
the great severity of the decline or, more particularly, for the
incomplete nature of the recovery. The study of cyclical change,
even in an "open economy" such as Canada's, requires a
broader framework than that which has usually been used for
this period. Such a framework should recognize that the deter-
minants of economic activity are varied, and that they are
related to developments over a considerable period of time.
Only by such an analysis can one hope to explain, for example,
why investment in durable assets by 1937 was less than half
the 1929 level, while exports of goods and services had almost
attained the 1929 level and there had been a growing surplus
in the current account after 1933.
In order to build on the work already done on this period,
a study of economic fluctuations will require emphasis in three
 INTRODUCTION 3

areas. First, as an intensive study of a particular cycle, or part

of it, it needs an approach which combines theory, statistics,
and history, in order to examine developments in the past and
the structure of the economy, and to determine how these
affected the period. Secondly, the effects of external transac-
tions on the domestic economy should be examined rigorously.
Thirdly, the determinants and role of domestic investment have
not been very thoroughly analysed for this period, and they
clearly warrant careful consideration.
We shall elaborate each of these points in turn before for-
mulating our preliminary hypotheses about the recovery prob-
lems of the thirties. Before doing so, however, a brief look at
the structure of the economy is necessary, since the nature and
the extent of fluctuations in any country are closely related to
this/

The Structure of the Canadian Economy

Canada sold and purchased abroad a very large amount of
goods and services, and certain commodities and countries
dominated this trade. In 1928 merchandise exports and exports
of goods and services were 22 per cent and 29 per cent respec-
tively of GNE, while merchandise imports and imports of
goods and services were 20 and 30 per cent. In 1928 the United
States took 38 per cent of Canada's merchandise exports and
the United Kingdom 22 per cent; the proportion of exports
going to these two countries was usually even higher than this
in the period under review. On the import side, fully 67 per
cent of total imports in 1928 were purchased from the United
States, and 16 per cent from the United Kingdom. There was
usually a current account surplus with the United Kingdom
and other overseas countries, the proceeds of which were avail-
able to help settle the large current account deficit with the
United States. A few commodities which bulked large in ex-
ports were either exported in.a natural state or were processed
before export, but generally not into highly manufactured com-
modities. In the period 1926-9 over half of total exports con-
sisted of wheat and flour, newsprint, pulp wood and wood-pulp,
and non-ferrous metals and products. Prominent among im-
ports were industrial materials and fuels, such as cotton, wool,
coal, and petroleum; many types of industrial and farm mach-
inery, and motor vehicles and parts; and agricultural products
not available in Canada.
The second factor of great importance in the economic
4 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

structure is the large amount of foreign capital in Canada. In

1930 foreign long-term capital in Canada amounted to $7,613
million, of which $4,660 million was held in the United States
and $2,766 million in the United Kingdom. About 30 per cent
of the total foreign investment was in railways, and about one-
fifth in each of manufacturing and government securities. Non-
resident ownership of manufacturing and steam railways was
40 per cent and 56 per cent respectively in 1930.2 The effects
of such large amounts of foreign capital on the determinants of
investment, income payments abroad, monetary conditions,
and government policy, deserve careful analysis in any study
of fluctuations in Canada.
Related to these is the heavy investment necessary per
capita in a country with a great area and a small population,
particularly if it is to exploit most advantageously its more
abundant staple products. The opening of the prairies for wheat
production, and the provision of transportation and handling
facilities to move the crop to seaboard; the development of non-
ferrous metals; the manufacture of newsprint paper; all of these
required large amounts of capital. The same was true of a
number of highly manufactured products such as automobiles,
with the related heavy investment in roads and other facilities.
Large overhead costs must be incurred in a relatively short
period for such developments, and returns are dependent on an
uncertain future. If that future involves a serious price defla-
tion, the burden of overhead costs will create severe strains in
the economy. Where, as in Canada, much of this capital was in
the form of bonded debt, underwritten by governments, and
payable to non-residents* the implications for anti-depression
policy become highly important.
Another significant point is the large proportion of the
population engaged in agriculture. The civilian labour force in
1931 was estimated at 4,105,000, of which 12 per cent were
unemployed. Of the employed group, agriculture accounted
for 29 per cent, manufacturing industries 15 per cent, and ser-
vice industries 13 per cent.3 Although agriculture's relative
2
Canada, Dominion Bureau of Statistics, Canada's International
Investment Position, 1926-1954, pp. 34, 72, 78. The Dominion
Bureau of Statistics is henceforth referred to as D.B.S.
s D.B.S., Canadian Labour Force Estimates, 1931-1950. It should
be noted that if employers, self-employed, and unpaid family
workers are included by industry, the shares of manufacturing
and services are increased to about 17 per cent and 20 per cent
respectively, while that for agriculture is unchanged. See D.B.S.,
Canada Year Book, 1937, p. 145. This publication is henceforth
referred to as C.Y.B.
 INTRODUCTION 5

contribution to employment had fallen steadily from about 45

per cent of the total in 1891 to about 30 per cent in 1931, the
agricultural industries were clearly still of major importance.
Furthermore, agriculture was highly concentrated as to cash
income; in 1926 and 1927 wheat accounted for about 40 per
cent of farm cash income, and cattle, calves, and hogs for
another 20 per cent. A large proportion of some of the more
important agricultural products was exported. This was parti-
cularly true of the largest crop of all, namely wheat, of which
over 70 per cent was exported in the form of wheat or flour in
the late twenties.
Although there is no a priori reason why agriculture gener-
ally should lead to cumulative, self-reversing, and more or less
rhythmic fluctuations of the type we have in mind,4 its import-
ance in the Canadian economy requires that it be studied
closely. Some attention will be given, therefore, to the inter-
action of agriculture and industry, the special factors leading
to instability in agriculture and its role in the transmission of
external developments to the domestic economy.
These comments by no means exhaust the aspects of the
structure of the economy which need to be kept in mind when
considering economic fluctuations. Other aspects will be devel-
oped as the analysis proceeds, as will such important institu-
tional factors as the organization of the banking system and
the attitude of government to its role in dealing with fluctua-
tions.

The Approach to Economic Fluctuations

It was noted that the intensive study of a particular cycle re-

quires the use of theory, statistics, and history.5 The use of
theory is (or should be) common to all analysis of fluctuations.
Unless one is to be bogged down hopelessly in the many events
and statistics, assumptions must be made, their effects reasoned
out, and the resulting hypotheses tested. The intelligent use of
statistics is necessary not only to measure the actual behaviour
of the economy, but also to examine the hypotheses as they
apply to the period under review. Finally, a broad historical
picture of the actual environment in which the fluctuations took
4
Except for some specific commodities.
5
For a statement of the method of the "quantitative-historical"
approach, see Robert A. Gordon, "Business Cycles in the Inter-
war Period," Papers and Proceedings of the American Economic
Association, especially pp. 54-6.
6 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION
place is necessary since the historical background determines
the particular nature of each cycle to an important degree.
Furthermore, hypotheses can never be "proved" in a, definitive
sense; judgment must be exercised, and this is impossible with-
out a knowledge of the historical circumstances. Such an ap-
proach clearly involves close attention to developments in the
important sectors of the economy, as well as the use of aggre-
gative measures of activity. The conclusions are intended to
apply only to the period covered, although similarities to other
cycles will be evident.
Finally, no study of this type can begin in a vacuum. The
fluctuations in any period are related not only to current
developments, but also to those in the immediately preceding
period and to trends over a considerable period of time. Al-
though no attempt will be made here to separate precisely the
cyclical and trend movements, some consideration will be given
to the inter-relationships between them as they affected this
period.

Some Comments on External Transactions

It was stated above that this study will place a considerable

emphasis on the impact of external transactions. However, not
only must their role be carefully defined, but also a theory of
external determinants, as an explanation of Canadian economic
fluctuations, must not be pushed beyond certain limits.
One might question, for example, the relevance of the con-
cept of business cycles for Canada, with her large primary and
processing industries and important external ties. Might not.the
fluctuations in Canada be regarded as the result of the trans-
mission of fluctuations in activity from more highly industrial-
ized countries? This view is correct if it implies that the pattern
of cyclical change in Canada is determined, to an important
degree, by events outside the Canadian economy, and that the
theoretical structure developed to explain such fluctuations in
highly industrialized countries is not entirely relevant to the
Canadian economy. With respect to the former point, however,
it should be noted that recurring fluctuations of a self-reinforc-
ing nature have appeared wherever certain characteristics have
dominated an economy: money transactions, the profit motive
combined with the making of decisions distributed among many
individuals and organizations, and the use of large aggregations
of capital in a highly complex and interdependent production
 ÍNTRODUCTION 7

process. Moreover, in a richly endowed young country experi-

encing rapid surges in the development of resources and indus-
trialization, fluctuations are bound to occur unless perfect
judgment on the part of entrepreneurs and governments can be
assumed. Fluctuations in Canada, and especially the major
turning points, will be greatly influenced by those occurring
abroad, but this is not to say that fluctuations are not inherent
in the Canadian economy itself. Neither the extent of fluctua-
tion nor the timing of turning points follows a set pattern as
between Canada and her main trading partners.6
Theoretical explanations of cycles, as developed for more
highly industrialized economies, must undergo certain modifi-
cations if they are to be used to explain fluctuations in Canada.
More emphasis must be placed on the balance of payments, the
relative importance of investment determinants will vary, and
the emphasis on domestic investment typical of many theories
will have to be shared with exports. Any consideration of the
limitations and effects of policy decisions will have to take more
account of external factors. However, the presence of a largely
private enterprise economy, the durability of capital invest-
ment, a high standard of living and a wide variation in distribu-
tion of income, and the industralization of some sectors of the
economy, all suggest that much of the theoretical structure
developed elsewhere will be relevant to a discussion of Cana-
dian cyclical fluctuations.
Perhaps this problem can be put in perspective by defining
three types of economic activity found in Canada. First, certain
industries and regions, engaged mainly in the production and
processing of primary products for export, are directly depend-
ent on export activity. Wheat, newsprint, and non-ferrous
metals are the most important examples. A second type of
economic activity is not directly related to export activity.
Much of the secondary manufacturing industry, for example,
was developed largely to serve the domestic market. In the
housing industry also many determinants exist which are not
directly related to the export market. All forms of this type of
activity are affected, of course, by changes in income in the
export sector, and some of the manufacturing industries are
subject to competition from imports as well. Finally, some types
of economic activity parallel developments abroad. Major in-
ternational events, such as wars and their aftermath, will tend
6
This view is emphasized by the findings of Veraon M. Malach.
See his International Cycles and Canada's Balance of Payments,
1921-33, particularly p. 47.
8 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION
to have similar effects on both Canada and her main trading
partners. An extension of this type of activity may be noted in
the automobile industry. The introduction of the industry, its
growth, and changes in it will tend to parallel similar events in
the United States, partly because the Canadian industry is an
outgrowth of that in the United States, and partlv because some
of the forces affecting the industry in each country are similar.
Let us pursue the question of dependence on external fac-
tors a little further. Clearly the importance of exports as a
determinant of investment cannot be interpreted in a rigid
current sense. In the period 1900-14, investment rose by leaps
and bounds; exports, however, although well over the levels of
the previous decade, were relatively stable from 1900 to 1905.
They were relative stable once more from 1906 to 1911, but at
a higher level. It was not until after 1911, when the investment
of the previous decade had taken effect, that exports rose
rapidly. Exports were stable from 1925-9 when investment rose
very rapidly once more; the one exception was in 1928, when
the largest wheat crop in Canadian history was harvested.7 To
expect a simple relatonship, in the form of rising exports lead-
ing to rising investment over short periods, would be to
accept a very crude form of the multiplier and accelerator.
Exports clearly have to be fairly high, and they must not
experience a severe setback; but they do not necessarily have
to rise rapidly, or at all, in order to help create the proper con-
ditions for an investment boom.8 Export prospects must be
favourable, or rather judged to be favourable, but with this
consideration we have moved from current trends in sales to
expectations with regard to an uncertain future. Current export
sales, and those expected in the near future, should not be
over-emphasized as a determinant of investment even in the
7 It should be added that exports in the second half of the twenties
were well over those of the first half, reflecting particularly the
recovery in the agricultural sector. Exports were also fairly
stable from 1947 to 1950 inclusive at a time when investment
rose rapidly. The Korean War and heavy wheat crops raised
exports to higher levels thereafter.
8 It is worth noting, however, that there was an export balance
in each of the three periods preceding the investment booms.
The picture is complicated by the effect of war and post-war
disturbances, which contributed to export balances in the two
later periods referred to in the text and the previous footnote.
It would appear, however, that periods of great prosperity in
Canada have usually been associated with deficits (except in
war) and those of lesser activity with surpluses. See K. W.
Taylor, Statistics of Foreign Trade, Vol. II : Statistical Contribu-
tions to Canadian Economic History, pp. 3-5.
 INTRODUCTION 9

great primary exporting and related processing industries; they

represent only one of the factors taken into account to gauge
prospects in an uncertain long-term future, especially if the
industry is young. For many of the secondary industries, fur-
thermore, such factors as tariffs, growth of population, and
urban development will play a greater role than whatever
export outlets they may develop - with the important proviso
that the over-all levels of exports must be broadly sustained.9
One should note also the large part of the investment pro-
gramme which is reflected in imports. Does the cumulative
reciprocal interplay of investment with consumption, which has
been emphasized in business cycle theories for more self-con-
tained economies, have a role in a country like Canada? Not
many statistics are available on this, but the following are
suggestive. The greatest relative import content for the com-
ponents of GNE is likely to be in expenditures for machinery
and equipment. Imports of machinery and equipment in the
late twenties were probably 30 to 40 per cent of total Canadian
purchases of machinery and equipment.10 This was at the
height of the boom in Canada. The direct import content of
expenditures for construction would be well under this, perhaps
about 10 to 15 per cent, since most of the necessary materials
would be produced in Canada and the high labour content
would be almost wholly domestic.11 The import content of non-
9
This dependence on economic activity abroad, and particularly
on that in the United States, is of course not unique to Canada.
Rapid development is highly unlikely in most trading countries,
even highly industrialized countries, given a major depression
in the United States. For the impact of the United States on
world activity in the inter-war years, see United States, Depart-
ment of Commerce, The United States in the World Economy.
The international synchronization of business fluctuations is
shown in Wesley C. Mitchell, Business Cycles: The Problem
and Its Setting, pp. 424-50, and Gottfried Haberler, Prosperity
and Depression, pp. 266-7.
1° The import content of Canadian purchases of machinery and
equipment in 1929 is given as 21 per cent in Canada, Department
of Trade and Commerce, Private and Public Investment in
Canada, 1926-1951, p. 23 (henceforth referred to as P.P.I.).
Some related indicators suggest this figure may be low. Another
study concluded that "approximately 40 per cent of the domestic
disappearance of machinery and equipment from 1926 to 1930
was imported." See Kenneth Buckley, Capital Formation in
Canada, 1896-1930, pp. 36-7 and 99. Some part of the difference
between these two figures reflects the use of gross investment
data for total machinery and equipment expenditures in the
former estimate, in contrast with the flow at producers' prices
in the latter.
11 See Buckley, Capital Formation in Canada, 1896-1930, p. 36.
10 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

farm inventories was probably higher than that for construc-

tion, but a measure of it is not available. It is clear that, while
investment would lead to considerable "leakages" via imports,
the major part of the direct effects would be on Canadian in-
come and employment. Rising consumer expenditures, a result
of the increase in investments would also spill over into imports;
part of the effect of such expenditures on induced investment
would, therefore, be felt abroad. But there would be enough
effect in Canada to yield a cumulative interplay of investment
and consumption. The difference between the Canadian econ-
omy and more self-contained economies lies in the relatively
larger import leakages and in the possible complications in the
balance of payments which may develop in a rapid upswing.
Another factor of great importance is the heavy inflows of
capital from abroad which have developed in periods of rapid
investment in Canada. These have had tremendous effects, not
only by permitting a degree of development beyond the capa-
city of the domestic economy, but also in the borrowing of
highly developed technology and the integration of commodity
and financial markets. While acknowledging and emphasizing
the great importance of such flows, we must keep in mind the
sequence of events and motivation. Viner's classic study empha-
sized that the capital inflows led to an increase in reserves; that
domestic prices rose more than export prices, and both rose
more than import prices; and that, consequently, an import sur-
plus developed.12 Later analysis has not only added the effects of
income changes on imports (in addition to the effects of differ-
ing changes in price levels), but also pointed to determinants
of income other than capital imports.13 The work of Innis and
others has emphasized the "real" forces inherent in the rapid
development of domestic investment, the effects of techno-
logical changes combined with vast primary resources, and the
rigidities and other maladjustments which an investment boom
may leave in its wake. Attention has been shifted, in other
words, to large changes in autonomous investment, whether
financed in Canada or from abroad. This type of analysis must
supplement the balance of payments aspects if a proper under-
standing of cyclical changes (as against the transfer mechanism)
is to be achieved.
12 Jacob Viner, Canada's Balance of International Indebtedness,
1900-1913.
is C. G. Meier, "Economic Development and the Transfer Mechan-
ism," Canadian Journal of Economics and Political Science. This
journal is henceforth referred to as CJEPS. See also p. 17.
 INTRODUCTION 11

Even where foreign capital has provided a major share of

the financing necessary for domestic investment, some distinc-
tions should be made with respect to making decisions and
taking risks. Decisions concerning the inflow of capital for
direct investment, as well as the retention of profits in Canada
by subsidiaries, certainly reflect the policies of paient com-
panies abroad. The initiative for investment financed by new
issues sold abroad, however, generally rests with Canadian
corporations and governments. In terms of the decision-making
process, new issues play a permissive rather than an activating
role. In those direct investment companies which are fully
owned abroad, all the capital risks are normally borne by the
parent company. Where foreign financing involves capital in
the form of new issues only, however, control of the operation
rests with residents. The risks involved for the non-resident
then consist of exchange losses, if the issue is payable in Cana-
dian currency, and the possibility of default. These risks were
often minimized by the issue of securities which were optionally
payable in foreign currencies and by government guarantees.

The Role of Domestic Investment

Two analytical devices should be described briefly. One is the
multiplier. An increase in investment in plant, for example,
will lead to a greater increase in income than the actual ex-
penditure on the plant, because of the induced effects on con-
sumer spending. An increase in government spending or exports
(or the export balance at similar levels of total trade) will have
the same types of consumer re-spending effects. Just how far
such a process goes depends, among other things, on the size
of the initial outlay and whether it is repeated; the extent to
which increased savings, taxes, and payments abroad (resulting
from the higher income) create leakages from the flow of
income; the stage of the cycle; and any possible adverse effects
associated with the initial increase in spending.
Part of the effect on income lies in the stimulus given to
investment by the increase in consumer spending. The acceler-
ator is an analytical device for examining the relation between
production of producers' or consumers' durables and final con-
sumption or sales.14 Since such durables give a stream of goods
14
There is a considerable literature on the multiplier and accel-
erator principles, part of which is referred to in CHAP. vi. For
an excellent brief analysis, see Robert Aaron Gordon, Business
Fluctuations, CHAPS iv and v.
12 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

and services over time, a given increase in consumption will

le^d to. a much greater rise in the production of the durable
good itself - if expectations as to the future course of demand
and other factors lead to a decision to increase production of
the durable good. The degree to which the output of the dur-
able good increases depends on the durability of the investment
required to produce the commodity and the importance of
other production costs for the commodity. If there were a fixed
relation between the amount of change in the output of the
final product and the output of the capital equipment necessary
for its production, a fall in the absolute amount of increase of
final output could lead to a fall in the absolute level of related
investment.
In this rigid sense the theory is not applicable to reality. The
relation of final demand and investment is not fixed since it
depends on expectations as to the future course of demand,
the availability of capital, cost-price relations, and other con-
ditions, as well as changes in current demand. Excess capacity
will modify the relationship, since an increase in final demand
may lead only to greater use of existing facilities. Statistical
tests of the accelerator have generally been unfavourable.15
The basic concept is a useful one, however, since changes in
output are one factor affecting decisions about the expected
future profitability of some investment. The concept also helps
explain the greater swings in the production of investment
goods than of final output. The usefulness of the concept is
increased if it is limited to specific industries and longer
periods of time.16
The durability of investment and the uncertainty of the
return together give investment its instability. Durability means
that replacement can be postponed and that investment will
give services over a considerable period of time. This, in turn,
may lead to a bunching of investment by various industries
when opportunities are favourable, and very little investment
(apart from minimum replacement) when conditions deterior-
ate. The uncertainty of the return on investment is, of course,
a reflection of the fact that a large commitment must be made
in the present which may or may not be justified later by the
course of events.
Here we are at the crux of the question of what determines

is For a list of tests and a discussion of the accelerator principle,

see A. D. Knox, "The Acceleration Principle and the Theory of
Investment," Económica.
*6 Gordon, Business Fluctuations, pp. 104-7 and 118.
 INTRODUCTION 13

investment. The expectation of profit in the future is, in general,

the determinant of private investment. But what determines
expectations with respect to future profitability?
It is convenient to distinguish two types of investment. Some
investment is induced by changes in aggregate income in the
immediate past, the present, and those expected in the near
future. Autonomous investment, on the other hand, is not
closely related to such changes in income.17 The former type
of investment will play a relatively greater role in older indus-
tries, in the absence of rapid technological change in such
industries. One can grant the usefulness of a modified accelera-
tion principle, as in induced investment, and still point out that
autonomous spurts in investment are the dynamic factor in an
economy. Such a concept is particularly useful in explaining
investment in new industries undergoing rapid expansion.
The reaction of autonomous investment in Canada to its
determinants resembles that in highly industrialized and more
self-sufficient countries: it tends to come in spurts and bunches,
it can fall off as rapidly, and it may get under way without an
increase in current output. It differs from these other countries,
however, in that the accelerator is even less applicable in Can-
ada because the country is less developed; in such a country,
much investment may at times be determined by the prospects
over a very long period for vast sections of the country.18 An-
other difference, of coursé, is that much more of the output of
autonomous investment must eventually be exported.
The most important single factor affecting autonomous
investment is innovations.19 By this we mean not only techno-
17
Some objections can be voiced to these concepts. See T. Wilson,
"Some Reflections on the Business Cycle/' Review of Economic
Statistics, p. 245; and M. J. Ulmer, "Autonomous and Induced
Investment," American Economic Review, p. 587. It will be
admitted that there is a constant interplay between the two types
of investment, and also that the classification is not a very
thorough one. It is useful for preliminary analysis, however,
particularly as it directs attention to the dynamic aspects of
investment in relatively new industries or those older ones under-
going extensive change.
is Stewart Bates has made this point in his review of Haberler's
Prosperity and Depression in CJEPS, p. 602.
is For an analysis of this concept and its relevance to economic
fluctuations see Gordon, Business Fluctuations, pp. 327-32 and
Alvin H. Hansen, Business Cycles and National Income, pp.
72-6 and 190-4. Joseph Schumpeter gave a central role to in-
novations in his analysis of cycles, and H. A. Innis has emphasized
their place in Canadian economic development. Malach has
used the concept to good effect in analysing Canadian turning
points in the twenties and early thirties.
14 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION
logical change, but also new markets (including export mar-
kets), exploitation of new resources, settlement of new areas,
and other important developments leading to greatly increased
expectations of future profits. The innovations may have been
developing for a while, but the full impact is likely to be fairly
sudden and large, leading to a cumulative upswing via the
multiplier-accelerator model. It is the impact of innovations
which wrecks any attempt to relate investment to current sales
or income and which plays the dynamic role in Canadian
cyclical change.
A comprehensive analysis of investment would bring in a
number of other factors affecting business expectations as to
the profits to be derived from investment. These include avail-
ability of funds at home and abroad, cost-price relationships,
the amount of debt already incurred, the stock of capital and
its degree of utilization, the desire to maintain the competitive
position of the firm, government policies, expectations as to
the general outlook and, of course, the rate of change in current
sales. Autonomous investment will be undertaken in a particu-
lar industry given an innovation and if the climate for invest-
ment, as determined by the above factors, is favourable.
Changes in current sales are clearly not enough, even for in-
duced investment; there may be excess capacity, or wide fluc-
tuations in the recent past may make firms hesitate to under-
take large commitments. Investment by governments will have
somewhat different determinants because much more than the
profit motive is usually involved. Decisions made by govern-
ments about future developments also involve difficult judg-
ments about the prospects over very long periods, especially if
the governments are actively assisting the settlement and devel-
opment of a country.

Some Preliminary Hypotheses

Canadian economic fluctuations cannot be explained by a

simple model. Export changes are very important, but so are
changes in autonomous domestic investment (whether for
eventual home or foreign consumption). As we look at the
record, these two dynamic variables must be given close atten-
tion. In particular, we shall look closely at the impact of thé
former on the economy and at the various determinants of the
latter. In order to give a fuller explanation of this period, some
 INTRODUCTION 15

important aspects of domestic consumption and government

policy will also be considered.
Why was the recovery of the Canadian economy so incom-
plete in the thirties? Our major preliminary hypotheses can be
summarized as follows.
(1) The international downswing struck Canada at a time
when the major phase of western settlement had largely been
completed. The great surge of autonomous investment before
the war, based primarily on wheat and railways, had lost some
of its impetus in the twenties.
(2) Several large and relatively new industries developed
rapidly in the twenties. Their impact on the thirties was limited
by the fact that investment opportunities had been so thoroughly
exploited in the twenties. There were no extensive backlogs of
investment opportunity in the major industries, old and new,
to cushion the downswing and expedite the recovery.
(3) The severe downswing deserves careful analysis be-
cause it left a host of problems in its wake which slowed
recovery. The severity of the downswing in Canada was pri-
marily a function of the extent of the collapse of exports and
domestic investment. The Canadian economy, as developed
over several decades, was peculiarly vulnerable to the type of
international collapse which occurred, a collapse involving an
exceptionally severe industrial and financial collapse in the
United States, a sharp decline in world primary prices, and the
demoralization of the world trading and financial mechanism.
The downswing in Canada was accentuated by a number of
cost rigidities, financial excesses in the preceding Canadian
boom, and monetary crises elsewhere.
(4) The beginning of recovery in Canada reflected pri-
marily the impact of recovery abroad although a number of
internal adjustments occurred in the downswing which eased
the start of recovery. The recovery of exports to their previous
levels, and a growing export surplus, left the economy well
below full employment levels by 1937, however, with a par-
ticularly large gap in domestic investment relative to 1929. The
cumulative interplay of exports with domestic spending com-
ponents, as indicated by the multiplier-accelerator model, was
weak. The three major factors in the incomplete recovery of
the economy are noted below.
The damage to the world trading and financial mechanism
was only partially repaired in the upswing. The slow and erratic
recovery in the United States was an important factor in the
16 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

Canadian recovery.20 It is true that total exports of goods and

services rose to about the 1929 level, particularly with increased
gold production and larger sales to the United Kingdom. The
nature of the recovery in exports, however, suggests that the
effects on income were modified in several ways. There was
little recovery in primary export prices until late in the up-
swing, and the terms of trade did not return to the level of the
late twenties till 1937. It was a highly uneven recovery, with
little improvement taking place in the important wheat trade.
The strongest growth in exports was in metals, but the multi-
plier effects in this sector were probably relatively small.
Secondly, the effects of the downswing lingered into the
upswing and retarded recovery. Many of the uneven price-cost
declines were not fully corrected for much of the upswing. A
strong desire for liquidity and reduction of debt prevailed after
the unhappy experience of the downswing, and because of a
large continuing burden of debt. The tremendous excess capa-
city which prevailed, and continuing high inventory ratios,
limited for a time the effect of rising sales on induced invest-
ment.
Thirdly, the recovery in domestic investment was quite in-
complete. As noted earlier, the extent of recovery in long-term
investment depended not only on current sales, but also on the
extent to which investment opportunities had been exploited
earlier, how far corrective adjustments were made in the down-
swing, the degree of excess capacity, and the effects of these
and other factors on business men's expectations about future
profitability. The failure of autonomous investment to revive
was closely related to the previous thorough exploitation of
investment opportunities, as noted in (1) and (2) above. The
cautious approach to both induced and autonomous investment
should also be related to the developments in the downswing
and upswing, as noted above, which weakened the incentive to
invest.
(5) The downswing in Canada was more severe, and the
20
It should be clear from the previous paragraph that the use of
the term "slow" here is relative. The actual percentage increases
from the low point of 1933 were substantial. But the recovery
by 1937 was well short of both the full employment level and
the previous peak in the late twenties, and the ratio of national
income in 1937 compared to 1929 was low relative to that of
most other countries. The term "slow" in this context, therefore,
refers to the incompleteness of the recovery. I am indebted to
Mr. Gideon Rosenbluth for drawing my attention to the need
to emphasize this distinction.
 INTRODUCTION 17

recovery slower, relative to 1929, than in many other countries.

As a preliminary explanation of this, three points are suggested.
First, the collapse of world primary prices and the restrictions
on world trade would affect Canada more seriously than many
other countries, both because of the large role played by ex-
ports and because of the degree to which exports consisted of
primary products. Secondly, the international collapse occurred
at a time when new investment opportunities had been exploited
for some years at a rate which had few parallels elsewhere, and
when the major phase of western expansion was coming to an
end. Thirdly, one of the most severe downswings and most
incomplete recoveries occurred in the United States. The aggre-
gate swings in Canada and the United States were not greatly
different. In part this reflects the close economic ties which
Canada has with the United States. In part, however, it was the
result of factors which cannot be related closely to current
developments in the United States.
CHAPTER TWO

Antecedents of the Depression

of the Thirties
The course of the depression and recovery cannot be properly
understood without some study of developments which took
place long before the thirties. Our immediate task, therefore,
is to outline briefly economic change in the preceding decades,
noting particularly several developments which were to affect
the course of the depression profoundly.
Three distinct periods of development can be delineated
after 1895. From about 1895 to 1913 the settlement of the west
dominated the economic scene. The wheat boom and the exten-
sion of the railway system are the main themes of this period.
The war of 1914-18 consolidated the growth in these sectors
of the economy and gave a strong impetus to several relatively
new industries. During the twenties these new industries were
pushed forward vigorously, easing for a time some problems
of adjustment which were becoming evident in the older indus-
tries.

The settlement of the West*

For approximately twenty years before 1895 the growth of the

Canadian economy was slow. Although there were some out-
standing achievements, such as the construction of the Cana-
dian Pacific Railway, falling prices and relatively slow progress
abroad severely hindered economic development.
Two basic national decisions made at this time were to have
important repercussions on the future. One was the decision
to use tariff protection as a stimulus to industrialization, a
decision given effect in the tariff of 1879. The second decision
i The most inclusive source on this period is Canada, Report of
the Royal Commission on Dominion-Provincial Relations,
especially Book I, Canada: 1867-1939, CHAP, m, and Appendix
III by W. A. Mackintosh, The Economic Background of
Dominion-Provincial Relations, CHAPS, n-iv. This report and its
appendixes are henceforth referred to as the Rowell-Sirois Report.
The writer has used this very able report extensively for historical
background, particularly in the period up to 1930. For an excel-
lent recent analysis see Buckley, Capital Formation in Canada,
CHAPS. I-VI.
 ANTECEDENTS OF THE DEPRESSION OF THE THIRTIES 19

was to build the Canadian Pacific Railway by an all-Canadian

route. In effect, this meant higher construction costs and, ac-
cordingly, need for greater aid from the Dominion government.
When the west finally began to open up, a thiid policy was
added to and integrated with these two, namely, deliberate
attempts by governments to aid and expedite the settlement of
the west by immigration policy, aid to transportation, and other
means. These three basic decisions were closely related. The
tariff was intended to preserve much of the new western market
for Canadian industry, and industrialization would increase
the east-west traffic so crucial for the railways.2
The rapid development which took place in Canada after
1895 was dependent on a number of changes in Canada, West-
Europe, and the United States.3 The increased rate of world
industrialization and the trend to urbanization led to large
increases in the demand for raw materials and foodstuffs. Prices
were generally rising after 1895, and the prices of Canada's
exports rose more rapidly than those of her imports, particu-
larly of the iron and steel imports necessary for the investment
programme. Interest rates were low, and the capital market in
the United Kingdom was once more willing to make large
amounts of funds available. Transportation costs fell with the
building of transcontinental lines, government regulation to
ensure low rates for the movement of grain, the deepening of
the St. Lawrence canals, and improvements in ocean transpor-
tation. Finally, it should be noted that the best lands of the
United States plains had been settled, but excellent free land
was still available in Canada. Problems of production were
conquered in part by borrowing technology, such as the dry
farming techniques and irrigation methods developed earlier in
the United States to cope with lack of rainfall. The develop-
ment in Canada of early maturing varieties of wheat made it
possible to move northward into areas with shorter growing
seasons.
The boom which accompanied the conjuncture of. these
economic developments was very strong. Forces were set loose
which led to the development of the west and, more slowly, of
the mining and forest frontiers; a rapid growth of manufactur-
2 Rowell-Sirois Report, Appendix III, p. 20.
s Ibid., pp. 22-3 and Book I, pp. 66-7; V. W. Bladen, Introduction
to Political Economy, CHAP, v; D. C. Corbett, "Immigration and
Economic Development," CJEPS, p. 365; Buckley, Capital
Formation, CHAP. n. Buckley associates the timing of this major
turning point primarily with favourable market conditions for
wheat and the closing of the United States frontier.
20 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

ing and service industries; and rapid growth in population and

urbanization. The speed and direction of development were, to
an important degree, determined by government policies, while
capital imports and immigration gave an elasticity to the boom
it could not otherwise have had.
The development of wheat on the prairies for export was
the most important single factor in this boom. One million
people from other parts of Canada and from other countries
moved to the prairies between 1896 and 1913, and the propor-
tion of the total population living on the prairies rose from
7 per cent to 20 per cent. The development of wheat neces-
sitated large investments in railways, farms, and towns and gave
a great impetus to manufactures in the east.
The pattern of development was, to an important degree,
inevitable. Much of the west was better suited to wheat than
to any other product once the technological changes necessary
for its development had been made, and the wheat produced
was of the very highest quality. Canada was simply pursuing
on a vast scale the principle of comparative advantage through
specialization and trade. But certain consequences were in-
volved. A very heavy transportation burden was assumed by
the country. The specialization of the prairie economy meant
instability at times for all of Canada because of dependence on
fluctuating export prices in the face of relatively fixed costs,
because of dependence on weather, and because of the relative
immobility characteristic of agricultural regions. This insta-
bility was to be aggravated later by the optimism of the period
for, particularly after 1908, the dry belt of south Saskatchewan
was turned to field crops as well.4
Something like an industrial revolution occurred in Ontario
and Quebec, where the bulk of manufacturing activity devel-
oped. Manufacturing expanded rapidly under the impetus of
the growing western market and the general increase in popula-
tion, combined with protective tariffs which directed most of
the demand to the home market. Although the growth of manu-
facturing was distinctly oriented to the home market, in some
manufacturing industries important export outlets were to
develop. Borrowing of advanced technology through branches
and subsidiaries of foreign companies or by other arrangements
also played an important role in the development of manufac-
turing. The trend to larger and more integrated production
units was quickened in this period.
4 Rowell-Sirois Report, Book I, p. 68.
 ANTECEDENTS OF THE DEPRESSION OF THE THIRTIES 21
Two of the most marked characteristics of this period were
the growth and urbanization of the population.5 In the decade
1901-11 population increased at the rate of 3 per cent per
annum. Net immigration from 1910-11 was 715 thousand,
compared with a natural increase of 1,120 thousand. tfc At no
other time between 1851 and 1941 did migration add much
more than one-fourth as much as natural increase."6 Apart
from increases in population there were large shifts in popula-
tion under the impact of frontier settlement, industrialization,
and urbanization. The two most notable changes in the distri-
bution of population were the shift to the prairies and urbani-
zation. In spite of the many new farms brought into existence,
the ratio of urban to rural population rose from 32 per cent to
45 per cent from 1890 to 1910.
The three basic national policies noted earlier had a sub-
stantial impact on this period, both as a stimulus and as a major
factor determining the nature of development. Railway policy
in particular deserves brief comment, since its lingering effect
on the thirties is given some emphasis below.7
The availability of staples and of cheap water transporta-
tion made it inevitable that Canada would produce a few staples
on a large scale for export. Very heavy outlays were necessary,
however, in order to span the west and to handle its produce
as it moved to world markets. The distances and areas to be
covered, and the fact that the dominant eastward movement of
wheat was seasonal, meant a tremendous overhead combined
with relatively unused capacity in some periods and peak loads
at others.8
Canada entered this period with one transcontinental rail-
way (the Canadian Pacific Railway), the Intercolonial Railway
for the Maritimes, and the Grand Trunk for Quebec, Ontario,
s For an analysis of population changes and their effects, see
Corbett, "Immigration and Economic Development," pp. 360-8;
N. Keyfitz, "The Growth of Canadian Population," Population
Studies; and M. C. MacLean, "The Correlation between Popu-
lation Density and Population Increase in Canada," Proceedings
of the Canadian Political Science Association.
6 Corbett, "Immigration and Economic Development," pp. 362
and 364.
7 See the Rowell-Sirois Report, especially Book I, pp. 69-72, and
Appendix III, pp. 32-4.
s H. A. Innis has developed the impact of innovations in trans-
portation in relation to the production of staple products, and
examined their effects on government finance and other factors.
See his Problems of Staple Production in Canada, particularly
CHAP, i; and "Unused Capacity as a Factor in Canadian Economic
History," CJEPS.
22 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION
TABLE 1
GROWTH IN THE ECONOMY, 1900-13
(Millions of dollars)

Item 1900 1905 1910 1913

Merchandise exports 156 205 281 443

Merchandise imports 177 264 429 655
Current account balance — 37 — 87 —251 —408
Net long term capital
movement +30 +110 +308 +542
Home investment (a) 86 158 273 405
Steam railway mileage 17,657 20,487 24,731 29,304
Capital employed in
manufacturing (b) 447 834 1,248 1,959
Wheat acreage (000) 4,225 — 8,865 11,015
Terms of trade (export
price as percentage of
import price) (c) 100 103 114 111
Wholesale price index 100 113 125 133
Population (000) 5,322 5,992 6,917 7,527

SOURCE: Rowell-Sirois Report, Appendix III, p. 25, and C.Y.B.

for various years.
(a) This series is from Buckley, Capital Formation, pp. 126-31.
It represents the flow of construction materials and machinery and
equipment at producers' prices. In 1901-10, according to Buckley's
quinquennial estimates, the flow of these products at producers'
prices amounted to about 60 per cent of gross domestic capital
formation (excluding inventories). More inclusive data on capital
fondation in this period appear in Table 4 below.
(b) Capital employed in manufacturing includes establishments
with five persons or more; the figure of $1,959 million is for 1915,
and includes establishments with an' output of $2,500 or more regard-
less of number of persons employed. It should be emphasized that
Canadian manufacturing series include processing of raw materials
as well as production of finished goods.
(c) Terms of trade are those estimated by Taylor, Statistics of
Foreign Trade.

and to Chicago. It emerged from it with two largely completed

additional transcontinental lines, the National Transcontinental
and the Canadian Northern Railway. These were in part incor-
porated with lines already existing, but involved extensive du-
plication both with one another and with the Canadian Pacific
Railway. In addition, the Dominion government had under-
 ANTECEDENTS OF THE DEPRESSION OF THE THIRTIES 23
taken the construction of the Hudson Bay Railway, although it
was not completed till much later. The provinces, furthermore,
by giving aid or guarantees, had pressed the building of local
lines.
The object of federal policies was to help open up the west
and to link the various regions. But the Dominion government
also emphasized, as it had during the earlier construction of the
Canadian Pacific Railway, the desirability of all-Canadian
routes and termini in preference to less costly routes which
passed through or ended in United States territory. The desire
to expedite and control railway construction involved govern-
ments in heavy financial obligations and substantial grants of
land. In addition to railways, other transportation facilities
received extensive government aid.
It is not simple to give the reasons for the tremendous
growth in railway mileage in this period. Governments and
others desired to lower rates, to link the various regions of
Canada,9 to open new areas, and to provide facilities for mov-
ing the rapidly increasing flow of products. Regional pressures
for lines were a powerful factor in the extensive building pro-
gramme; political exigencies could not fail to be important where
it was necessary to retain the favour of those who provided
guarantees for loans.10 Along with this complex of economic
and political factors, the tremendous optimism of the period
should be mentioned.11 The settlement of the prairie region in
the United States was a constant example, government revenues
were rising rapidly, traffic and settlement were booming, and
the rapid development of the period was expected to justify the
construction programme. By 1914, however, Canada was left
with great parallel stretches of track over what even today are
largely unproductive areas. The cost was not burdensome when
customs revenues and income generally were rising and new
9
It would be difficult to understand, however, why this linking
would involve three lines which duplicated one another to such
an extent.
10 E. W. Beatty, "The Canadian Transportation Policy," Papers
and Proceedings of the Canadian Political Science Association,
especially p. 111.
11 In this connection Innis has stated, "It would be heresy to ask
whether rapid development which involves mortgaging the re-
sources of a young country is desirable. New countries are not
in a position to ask whether capital investments are sound in
the long run. They proceed in an atmosphere of boundless
optimism on the assumption that there are no limits to the
country's possibilities." See his Problems of Staple Production in
Canada, p. 56.
24 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

capital was available to finance the old, but with the benefit of
hindsight one can note that other circumstances were to lead
to a severe burden and to limitations on the policy of the central
government.
It has been stated that 'The most fundamental character-
istic of the period was a high rate of investment induced by
improved expectations of profit from the exploitation of natural
resources, newly tapped by the extending railways, subjected
to new production techniques, or converted into profit possi-
bilities by favourable shifts in costs and prices."12 It was the
prospect of greater profits from sales in the future, sparked by
the innovations noted above, which must be regarded as the
dominant motivating factor in the investment boom. A whole
new area was being opened up in the west, and the older areas
were undergoing radical changes in manufacturing and service
industries.
Two points need to be emphasized here. The results of the
boom could not be foreseen; its justification lay in the distant
future. It would be a mistake, then, to attempt to relate the
rapid rise in long-range investment projects too closely to cur-
rent changes in sales. Like all strong booms, this was primarily
a surge of autonomous investment which induced further in-
vestment through its effects on income and consumption. It was
not till 1912 and 1913, after production capacity had been
greatly increased, that really rapid increases in exports could,
and did, take place. It was twelve years before the level of
exports doubled the 1900 total; in the same period imports rose
about three and a half times, and investment four and a half
times. Although the rise in export prices and values was an
important indicator of favourable prospects, emphasis must be
put on other factors as well.
Another point to be considered is the role of foreign capital
in the boom. It has been estimated that from 1901 to 1915
capital imports were more than half as large as domestic sav-
ings.13 The capital inflow both contributed to and financed the
growing deficit in the current account. The United Kingdom
supplied $1,750 million of the inflow of capital from 1900 to
1913, and the United States supplied another $630 million.14
The bulk of the inflow of capital was in the form of fixed-
interest' securities, which were mainly sold abroad by the gov-
12 Rowell-Sirois Report, Appendix I, p. 24.
is Buckley, Capital Formation, p. 63.
i* Viner, Canada's Balance of International Indebtedness, CHAP.
vi, especially pp. 126 and 134.
 ANTECEDENTS OF THE DEPRESSION OF THE THIRTIES 25
ernment or guaranteed by it. United States capital, however,
largely took the form of direct investment in manufacturing
and some of the primary resource industries.15
Viner's study of the transfer mechanism emphasized the
dominating role of capital inflows and corroborated the price-
specie-flow mechanism of adjustment in the balance of pay-
ments. More recently, changes in income have been given more
emphasis in the adjustment of the balance of payments, and
somewhat more attention has been paid to determinants of
income other than capital imports. It has been stated that "It
is significant that the noticeable acceleration of growth in the
Canadian economy after 1895 did not initially depend on the
inflow of foreign capital. Not until 1905 did foreign borrowing
reach significant proportions, although marked expansion com-
menced a full decade earlier. As we shall argue below, foreign
investment reinforced and prolonged the expansion, but it was
the opportunities provided by the earlier expansion which orig-
inally attracted foreign capital."16 In effect, the opportunities
were created by a number of innovations discussed earlier. The
preliminary exploitation was undertaken in Canada, but guar-
antees by governments and the prospects for wheat were key
factors in attracting foreign capital. The fact that the bulk of
financing abroad was in the form of public or guaranteed fixed-
interest securities, rather than direct investments, suggests
clearly that the decisions and risks lay very heavily with the
governments and corporations in Canada.17 The size of the
boom can be clearly related to the fact that a whole frontier
was available for exploitation, which meant large shifts in
population, and that immigrants and foreign capital were also
available.18

15 Of the companies in Canada in 1934 which were "controlled by

or definitely affiliated with American firms" 66 had been estab-
lished before 1900, while 273 of them had been established from
1900-13. Herbert Marshall, Frank A. Southard, Jr., and Kenneth
W. Taylor, Canadian-American Industry: A Study in Inter-
national Investment, pp. 19-21.
16 C. G. Meier, "Economic Development and the Transfer Mech-
anism," CJEPS p. 3.
17 in this context, it is interesting to note Buckley's comment in
Capital Formation (p. 34): "Government intervention rather
than the profitability of railroading in Canada was responsible
for the large flows of foreign capital attracted to the railway
field." He goes on to state that wheat was the prime mover in
railway development in this period.
is A. F. W. Plumptre, "The Nature of Political and Economic
Development in the British Dominions," CJEPS, p. 494.
26 THE CANADIAN ECONOMY IN THE GREAT DEPRESSION

So great was the boom in long-term investment that Canada

appears to have felt only mildly some of the brief downswings
abroad in this period.19 The annual data which are available
indicate that home investment did not fall in Canada during
the downswings in the United States in 1904 and 1911. Exports
declined moderately in 1904, imports rose, and investment was
stable. In 1911, exports rose moderately while both imports and
investment rose rapidly. In the downswing of 1908 in the
United States all three Canadian aggregates weakened and de-
clined somewhat, and in the 1914 downswing in the United
States all three fell considerably. In the latter decline, however,
the investment boom may have been tapering off in any case,
and the immediate effects of the war were depressing in Canada
as well.
The period 1895 to 1913 was one not only of great expan-
sion but also of increased specialization and interdependence.
A large domestic market was built up by the increases in popu-
lation, but heavy economic dependence on exports of food-
stuffs and raw materials in some regions, and the interdepend-
ence of regions, led to greater vulnerability to outside factors.
A great deal of the investment was financed from abroad. The
first test the economy would have to meet would be that of
selling the vast amounts of wheat abroad and developing an
export surplus (sufficient to finance and repay the loans) to the
extent that new inflows were not forthcoming or desired. One
cannot think of the decisions in this period as being taken with
an eye to all the immediate inter-relations and consequences
involved, not to mention the possible consequences in the far
future. But these decisions were to have some dominating influ-
ences on that future. Wheat and railways in particular, as they
developed, meant vastly increased wealth; they also meant
19 This statement must be considered as tentative since only a few
annual series were considered. For dates of United States cyclical
swings, see Wesley C. Mitchell, What Happens during Business
Cycles, p. 12. The annual figures for domestic investment refer-
red to in this paragraph are those of Buckley, as noted in Table
1. The estimates of home investment by A. K. Cairncross lead
to a similar conclusion; see Meier, "Economic Development and
the Transfer Mechanism," p. 3. It is of interest to note that the
United Kingdom, Germany and France skipped the downswing
of 1911 but not that of 1904; see the data from the National
Bureau of Economic Research as presented in Gordon, Business
Fluctuations, p. 562. It is also of interest that Willard L. Thorp,
through a reading of business annals, dated recessions in Canada
in 1907-8 and 1913-14, but not 1904 or 1911; see Wesley C.
Mitchell, Business Cycles: The Problem and Its Setting, pp.
392 and 432-4.
 ANTECEDENTS OF THE DEPRESSION OF THE THIRTIES 27
increased vulnerability to fluctuations in income, and rigidities
in the overhead costs of the economy. While prices and incomes
were rising with the investment boom, and the terms of trade
improving, the burdens of these debts and policies could be
borne. Differences of interest between regions on protective
tariffs and other matters, moreover, were less pressing. If de-
mand abroad did not develop to expectations or fell, and if
prices collapsed, the full costs of the structure erected in these
years would be evident.

The War and Its Immediate Aftermath

The Canadian economy by 1913-14 was experiencing difficul-
ties and passing from a period of rapid internal growth to one
in which a great need for markets abroad was evident. The war
made it possible to effect this transition, although it left in its
wake a great many other problems. A short post-war boom and
a severe but brief deflation afterwards preceded the long up-
swing of the twenties.20
The period from 1914 to 1922 has many interesting as-
pects, but for our purposes certain highlights only need be
touched. By 1913-14 the long investment boom was beginning
to slow down. Domestic investment in 1913 was equal to or
moderately above the 1912 level, in spite of a very large rise in
both exports and capital inflows. In 1914 both domestic invest-
ment and several other types of expenditure declined. Recession
in the United States, falling prices, higher interest rates and
growing difficulties in borrowing from London, and the disturb-
ance to international trade caused by the war, all contributed
to the interruption of economic growth.
This interruption was brief, however, as the demand for
foodstuffs and munitions in particular began to soar. In some
ways the war and immediate postwar period continued and
accentuated the developments of the previous two decades. In
addition, a number of relatively new industries were expanded,
and this momentum set the stage for their contribution to the
boom of the twenties.
Some of the more striking changes brought about by the
war were the rapid shift to current account surpluses in 1916,
20 See Alice W. Turner, "Sequence of Economic Events in Canada,
1914-1923," and B. H. Higgins, "The War and Postwar Cycle
in Canada, 1914-1923," in Canada, Advisory Committee on
Reconstruction', and Rowell-Sirois Report, Book I, CHAP, iv and
Appendix III, CHAP. iv.
Exploring the Variety of Random
Documents with Different Content
 III
STRENGTH OF WELLINGTON’S ARMY
DURING AND AFTER THE BURGOS RETREAT

The subjoined statistics show the marching strength of the Anglo-

Portuguese divisions of Wellington’s army at the commencement of
the Burgos Retreat (Oct. 23) and some days after its termination
(Nov. 29). There had been, immediately after the army reached
Ciudad Rodrigo, certain transferences of units from one division to
another, which are duly noted. The figures give only rank and file; to
get the fighting strength one-eighth should be added to cover
officers, sergeants, and drummers.
Present Present
under arms. under arms.
Oct. 23. Nov. 29.
1st Cavalry Division 2,827 2,909 (2nd Hussars K.G.L.
has joined.)
2nd Cavalry Division 1,947 1,625 (2nd Hussars K.G.L.
has left.)
1st Division 3,970 4,002 (1st & 3rd battalions
First
Guards have joined,
but
Stirling’s brigade has
been
transferred to the 6th
Division.)
2nd Division 7,915 6,591
3rd Division 4,229 3,860 (2/87th from Cadiz has
joined.)
4th Division 4,487 3,861 (1/82nd has joined.)
5th Division 3,638 3,732 (2/47th from Cadiz has
joined.)
6th Division 3,380 5,228 (The division has been
joined
by Stirling’s brigade
and also
by the 1/91st.)
7th Division 4,298 3,358
Light Division 3,428 3,775 (2 companies 3/95th
and the
20th Portuguese
have joined.)
Hamilton’s Portuguese 4,719 4,076
Division
Pack’s Portuguese 1,681 1,105
Brigade
Bradford’s Portuguese 1,645 881
Brigade
48,124 45,003
Artillery, Train, Staff 2,500 2,300
Corps, &c.
The fall in numbers would have been much greater but for the
joining of Skerrett’s force from Cadiz (3/1st Guards, 2/47th, 2/87th,
20th Portuguese, and two companies 3/95th) and of the 1/1st
Guards and 1/91st from England, and the 1/82nd from Gibraltar—in
all, nearly 6,000 men.
It may be worth while to give here the statistics of the Spanish
troops which were acting with Wellington’s and Hill’s armies during
this period. They were by their October morning states:

‘6th Army’ or Galicians (Santocildes):

1st Division (Barcena) 6,810 (5 of the 15 battalions of this division
were not at the front.)
2nd Division (Cabrera) 4,749
3rd Division (Losada) 4,213
Cavalry Brigade (Figuelmonde) 1,356 (5 of the 9 squadrons of this brigade
were not at the front.)
5th Army (Estremadurans and Castilian):
Morillo’s Division 2,371 (Acting with Hill’s Corps.)
Carlos de España’s Division 3,809 (ditto.)
Penne Villemur’s cavalry 992 (ditto.)
Julian Sanchez’s cavalry 1,159 (Acting with Main Army.)
Total Spanish troops 25,459
 IV
LOSSES IN THE BURGOS RETREAT

The casualties in action between October 23rd and November

19th are easily ascertainable, and quite moderate. But the loss in
‘missing’ by the capture of stragglers, marauders, and footsore men,
was much higher than is generally known. I believe that the annexed
table, from the morning state of November 29th, is now published for
the first time. It gives only the rank and file missing, but these are
almost the whole list: officers and sergeants did not straggle or drop
behind like the privates. I believe that the total of officers missing
was 25, of sergeants 56 British and 29 Portuguese: we have also to
add 43 British and 32 Portuguese drummers, &c., to the general list,
which runs as follows:
British. Portuguese. Total.
1st Cavalry Division 192 — 192
2nd Cavalry Division 101 8 109
1st Division Infantry 283 — 283
2nd Division Infantry 302 260 562
3rd Division Infantry 184 230 414
4th Division Infantry 308 19 327
5th Division Infantry 453 359 812
6th Division Infantry 96 74 170
7th Division Infantry 357 243 600
Light Division Infantry 92 163 253
Portuguese. Hamilton’s Division — 221 221
Portuguese. Pack’s Brigade — 293 293
Portuguese. Bradford’s Brigade — 514 514
Total 2,368 2,374 4,752
 The abnormally high totals of the 5th Division and 7th Division
are to be accounted for in different ways. The former had 150
prisoners taken in action on the day of the combat of Villa Muriel
(October 25); the latter contained the two battalions that always gave
a high percentage of deserters, the foreign regiments of Brunswick-
Oels and Chasseurs Britanniques. It will be noted that the 2nd
Division has also a high total, but as it had nearly double the
numbers of any other division (7,500 men to an average 4,000 for
the others) it did not lose out of proportion to its strength. It will be
noted that the Portuguese lost more heavily in relation to their total
numbers than the British—their ‘missing’ were about the same as
those of the British, but they only had about 20,000 rank and file in
the field as against about 30,000 British. This excessive loss in
missing was due entirely to the fact that the cold and rain of the last
ten days of the retreat told much more heavily upon them. They were
not so well clothed or fed as the British, and fell behind from
exhaustion. Bradford’s brigade, though never seriously in action, lost
500 men out of 1,600 by the roadside, much the heaviest percentage
in the whole army.
The losses in killed and wounded as opposed to ‘missing’ seem
to make up the following moderate figures, to which the heavy
fighting about Venta del Pozo and Villa Muriel during the first days of
the retreat made much the heaviest contribution.
Killed: 9 officers, 189 men. Wounded: 54 officers, 699 men—i. e.
the total of 951. This does not, of course, include the prisoners taken
at Venta del Pozo or Villa Muriel, who are counted among the
‘missing’ reckoned in the prefixed table. The losses in killed and
wounded at Alba de Tormes and San Muñoz are less than might
have been expected; those in the other skirmishes at Valladolid,
Tordesillas, &c., quite negligible.
 V
THE CAMPAIGN OF CASTALLA: APRIL 1813

Sir John Murray reports his army to have consisted of the

following elements:

Infantry: British, German, Anglo-Italian, and

Calabrese 8,274 officers men
Sicilian ‘Estero’ Regiment 1,136 ” ”
Whittingham’s Spanish Division (6
batts.) 3,901 ” ”
Roche’s Spanish Division (5 batts.) 4,019 ” ”
Cavalry: British, Spanish, and Sicilian 886 ” ”
Artillery, &c. 500 ” ”
18,716 ” ”
The units appear to have been brigaded as follows:
Advance Guard, General Adam: 2/27th, 1st Italian Levy, Calabrese
Free Corps, Rifle Companies of 3rd and 8th K.G.L.
J. Mackenzie’s Division: 1/27th, 4th and 6th Line K.G.L., Sicilian
Estero Regiment (2 batts.).
Clinton’s Division: 1/10th, 1/58th, 1/81st, De Roll-Dillon, 2nd Italian
Levy.
Cavalry: 20th Light Dragoon (2 squadrons), Foreign Hussars (1
troop), 1st Sicilian Cavalry, four Spanish squadrons[1062].
Whittingham’s Spaniards: Cordova, Mallorca, Guadalajara, 2nd of
Burgos, 5th Grenadiers, 2nd of Murcia.
Roche’s Spaniards: Volunteers of Aragon, Alicante, Chinchilla,
Volunteers of Valencia, Canarias.
Artillery: British companies of Holcombe, Thompson, Williamson and
Lacy; Portuguese company of Cox, one Sicilian company (three
of these companies were holding the forts of Alicante).
 VI
SUCHET’S ARMY AT CASTALLA: APRIL 13,
1813
[Return of April 1.]

Officers. Men. Total.

1st Division, General Robert [for Musnier, absent]:
1st Léger (2 batts.) 38 1,443 1,481
114th Ligne (2 batts.) 36 1,498 1,534
121st Ligne (2 batts.) 34 1,252 1,286
3rd Léger (2 batts.)[1063] 16 767 783
124 4,960 5,084
2nd Division, General Harispe:
7th Ligne (2 batts.) 31 1,298 1,329
44th Ligne (2 batts.) 26 1,160 1,186
116th Ligne (2 batts.) 35 1,502 1,537
92 3,960 4,052
3rd Division, General Habert:
14th Ligne (2 batts.) 42 1,189 1,231
1/16th Ligne[1064] 21 614 635
1/117th Ligne[1064] 27 829 856
90 2,632 2,722
Cavalry, General Boussard:
Two squadrons 4th Hussars 21 408 429
13th Cuirassiers 25 523 548
24th Dragoons (2 squadrons) 20 427 447
66 1,358 1,424
Artillery: four batteries 10 282 292
Total 376 13,192 13,568
 VII
BIAR AND CASTALLA LOSSES:
APRIL 12-13, 1813

Killed. Wounded. Missing.

Off. Men. Off. Men. Off. Men. Total.
Staff 1 — 2 — — — 3
Adam’s Brigade:
2/27th Foot — 18 2 90 — 2 112
1st Italian Levy 23 3 49 — 28 103
Calabrese Free Corps — 8 2 49 — — 59
Rifle Companies 3rd & 8th
K.G.L. 1 7 2 23 — 2 35
Mackenzie’s Division:
1/27th Foot — 2 — 18 — — 20
4th Line K.G.L. — 3 — 9 — — 12
6th Line K.G.L. — 1 — 5 — — 6
Sicilian ‘Estero’ Regiment — 1 — 8 — — 9
Clinton’s Division:
1/58th Foot — 1 — 5 — — 6
De Roll-Dillon — 4 1 20 — 9 34
Whittingham’s Spanish Division:
Cordova, Mallorca,
Guadalajara, 2nd Burgos,
5th Grenadiers, 2nd of
Murcia 2 73 4 183 — — 262
20th Light Dragoons — — — 1 — — 1
Sicilian Cavalry — — — — — 1 1
R.A. and drivers — — — 5 — — 5
Portuguese Artillery — — — 3 — — 3
Total 4 141 16 468 — 42 671
 VIII
WELLINGTON’S ARMY IN THE VITTORIA
CAMPAIGN
MARCHING STRENGTH, MAY 25, 1813[1065]

Cavalry
Officers. Men. Total.
R. Hill’s Brigade: 1st & 2nd Life Guards, Horse
Guards 42 828 870
Ponsonby’s Brigade: 5th Dragoon Guards, 3rd &
4th Dragoons 61 1,177 1,238
G. Anson’s Brigade: 12th & 16th Light Dragoons 39 780 819
Long’s Brigade: 13th Light Dragoons 20 374 394
V. Alten’s Brigade: 14th Light Dragoons, 1st
Hussars K.G.L. 49 956 1,005
Bock’s Brigade: 1st & 2nd Dragoons K.G.L. 38 594 632
Fane’s Brigade: 3rd Dragoon Guards, 1st
Dragoons 42 800 842
Grant’s Brigade: 10th, 15th, 18th Hussars 63 1,561 1,624
D’Urban’s Portuguese Brigade: 1st, 11th, 12th
Cavalry — 685 685
6th Portuguese Cavalry (Campbell) — 208 208
Cavalry Total 354 7,963 8,317

Infantry
Officers. Men. Total.
1st Division, General Howard:[1066]
Stopford’s Brigade: 1st Coldstream, 1st Scots
Guards, one company 5/60th 56 1,672
4,854
Halkett’s Brigade: 1st, 2nd, 5th Line K.G.L., 1st
& 2nd Light K.G.L. 133 2,993
2nd Division, Sir Rowland Hill:
Cadogan’s Brigade: 1/50th, 1/71st, 1/92nd, one
company 5/60th 120 2,657
Byng’s Brigade: 1/3rd, 1/57th, 1st Prov.
Batt.,[1067] one company 5/60th 131 2,334
10,834
O’Callaghan’s Brigade: 1/28th, 2/34th, 1/39th,
one company 5/60th 122 2,408
Ashworth’s Portuguese: 6th & 18th Line, 6th
Caçadores — 3,062
3rd Division, General Sir Thomas Picton:
Brisbane’s Brigade: 1/45th, 74th, 1/88th, three
companies 5/60th 125 2,598
Colville’s Brigade: 1/5th, 2/83rd, 2/87th, 94th 120 2,156 7,437
Power’s Portuguese Brigade: 9th & 21st Line,
11th Caçadores — 2,460
4th Division, General Sir G. Lowry Cole:
W. Anson’s Brigade: 3/27th, 1/40th, 1/48th, 2nd
Prov. Batt.,[1068] one company 5/60th 139 2,796
Skerrett’s Brigade: 1/7th, 20th, 1/23rd, one
7,816
company Brunswick 123 1,926
Stubbs’s Portuguese Brigade: 11th & 23rd Line,
7th Caçadores — 2,842
5th Division, General Oswald [for General Leith]:
Hay’s Brigade: 3/1st, 1/9th, 1/38th, one
company Brunswick 109 2,183
Robinson’s Brigade: 1/4th, 2/47th, 2/59th, one
6,725
company Brunswick 100 1,961
Spry’s Portuguese Brigade: 3rd & 15th Line,
8th Caçadores — 2,372
6th Division, General Pakenham [for General Clinton]:
Stirling’s Brigade: 1/42nd, 1/79th, 1/91st, one
company 5/60th 127 2,327
Hinde’s Brigade: 1/11th, 1/32nd, 1/36th, 1/61st 130 2,288 7,347
Madden’s Portuguese Brigade: 8th & 12th Line,
9th Caçadores — 2,475
7th Division, General Lord Dalhousie:
Barnes’s Brigade: 1/6th, 3rd Prov. Batt.[1069], 7,287
nine companies Brunswick-Oels 116 2,206
Grant’s Brigade: 51st, 68th, 1/82nd, Chasseurs 141 2,397
 Britanniques
Lecor’s Portuguese Brigade: 7th & 19th Line,
2nd Caçadores — 2,437
Light Division, General Charles Alten:
Kempt’s Brigade: 1/43rd, 1st & 3rd/95th 98 1,979
Vandeleur’s Brigade: 1/52nd, 2/95th 63 1,399 5,484
Portuguese 17th Line, 1st & 3rd Caçadores — 1,945
Silveira’s Portuguese Division:
Da Costa’s Brigade: 2nd & 14th Line — 2,492
A. Campbell’s Brigade: 4th & 10th Line, 10th 5,287
Caçadores — 2,795
Pack’s Portuguese Brigade: 1st & 16th Line, 4th
Caçadores — 2,297 2,297
Bradford’s Portuguese Brigade: 13th & 24th Line,
5th Caçadores — 2,392 2,392
R.H.A. and Drivers 23 780
Field Artillery, Train, Ammunition column, &c. 100 2,722
K.G.L. Artillery 17 335
Portuguese Artillery — 330
Engineers and Sappers 41 302
Staff Corps 21 126
Wagon Train 37 165

British. Portuguese. Total.

Total Cavalry 7,424 893 8,317
” 1st Division 4,854 — 4,854
” 2nd Division 7,772 3,062 10,834
” 3rd Division 4,977 2,460 7,437
” 4th Division 4,974 2,842 7,816
” 5th Division 4,353 2,372 6,725
” 6th Division 4,872 2,475 7,347
” 7th Division 4,850 2,437 7,287
” Light Division 3,539 1,945 5,484
” Silveira’s Division — 5,287 5,287
” Pack’s and Bradford’s Brigades — 4,689 4,689
” Artillery and Train 3,977 330 4,307
” Engineers, Staff Corps, &c. 892 — 892
52,484 28,792 81,276
 This is, I believe, the first complete return of Wellington’s army in
the Vittoria campaign ever published. My predecessors in Peninsular
history sought in vain for the ‘morning states’ which should have
accompanied Wellington’s dispatches to Lord Bathurst, and which
are mentioned in those dispatches. In previous years, down to
December 1812, they are generally found annexed to the covering
letter, in the bound volumes at the Record Office. I should have fared
no better than other seekers, but for the admirable knowledge of the
contents of the Office possessed by Mr. Leonard Atkinson. He
remembered that there existed some separate packages of ‘morning
states’, which had been divorced from the rest of Wellington’s
sendings, and not bound up with them. When sought, they turned
out to be the missing figures of 1813, tied up unbound between two
covers of cardboard. Mr. Atkinson’s happy discovery enables me to
give the prefixed statistics, which permit us to know Wellington’s
exact strength just as the campaign of Vittoria was starting.
 IX
SPANISH TROOPS UNDER WELLINGTON’S
COMMAND
JUNE-JULY 1813
STATES OF JUNE 1

I. FOURTH ARMY (GENERAL GIRON)

Officers. Men. Total.
Morillo’s Division 172 4,379 4,551
Losada’s Galician Division (6 batts.) 295 5,560 5,855
P. Barcena’s Galician Division (7 batts.) 235 4,908 5,143
Porlier’s Asturian Division (3 batts.) 124 2,284 2,408
Longa’s Division (5 batts.) 130 3,000 3,130
Penne Villemur’s Cavalry (7 regts.) 194 2,434 2,628
Julian Sanchez’s Cavalry (2 regts.) 90 1,200 1,290
Artillery 20 400 420
Total of June 1 1,263 24,165 25,425

II. LEFT IN CASTILE, REJOINED ON JULY 28

Carlos de España’s division of 4th Army (5 batts.) 175 3,167 3,342

III. JOINED ON JULY 16

The ‘Army of Reserve of Andalusia’ (Conde de Abispal)
Echevarri’s Division (7 batts.) 237 6,380 6,617
Creagh’s Division (7 batts.) 273 6,181 6,454
C. G. Barcena’s Cavalry Brigade (2 regts.) 39 789 828
Artillery 10 274 284
Total of later arrivals 734 16,791 17,525
 The General Total of the Spanish troops which actually joined
Wellington between May 26 and July 28 was therefore 46,292. This
does not include Mina’s irregulars operating in Aragon and Eastern
Navarre.
 X
THE FRENCH ARMY AT VITTORIA

ARMY OF THE SOUTH. Return of May 29, 1813.

[From Paris Archives, lent me by Mr. Fortescue.]
Officers. Men. Total.
1st Division, Leval:
Brigade Mocquery: 9th Léger, 24th Line 63 2,516 2,579
Brigade Morgan: 88th Line, 96th Line 43 2,056 2,099
Divisional battery and train 3 163 166
Divisional Total 109 4,735 4,844
2nd Division, Cassagne: lent to Army of the Centre.
3rd Division, Villatte:
Brigade Rignoux: 27th Léger, 63rd Line 39 2,539 2,578
Brigade Lefol: 94th Line, 95th Line 50 3,063 3,113
Divisional battery and train 4 179 182
Divisional Total 93 5,781 5,874
4th Division, Conroux:
Brigade Rey: 32nd and 43rd Line 78 3,591 3,669
Brigade Schwitter: 55th and 58th Line 47 2,670 2,717
Divisional battery and train 4 189 193
Divisional Total 129 6,460 6,589
5th Division, brigade Maransin only:
12th Léger, 45th Line 58 2,869 2,927
6th Division, Daricau:
Brigade St. Pol: 21st Léger, 100th Line 53 2,658 2,711
Brigade Remond: 28th Léger, 103rd Line 45 2,939 2,984
Divisional battery and train 3 237 240
 Total 101 5,834 5,935
Total 4½ Infantry Divisions 490 25,679 26,169
Cavalry:
Pierre Soult’s Division:
2nd Hussars, 5th, 10th, 21st Chasseurs 74 1,428 1,502
One battery H.A. and train 4 165 169
Tilly’s Division:
2nd, 4th, 14th, 17th, 26th, 27th Dragoons 88 1,841 1,929
Digeon’s Division:
5th, 12th, 16th, 21st Dragoons 80 1,612 1,692
One battery H.A. and train 3 174 177
Total cavalry 249 6,220 6,469
Artillery Reserve: two batteries and train 5 365 370
Artillery Park: two companies Field Artillery, one
company pontoniers, artificers, train 17 696 713
Engineers: two companies sappers, two miners,
and train 11 619 630
Gendarmerie 4 101 105
Wagon train 2 63 65
Total auxiliary troops 39 1,844 1,883
État-Major of the Army and the divisions 115 — 115
General Total of Army of the South 893 33,743 34,636
ARMY OF THE CENTRE AT VITTORIA
Return of May 29 for Cassagne’s Division; of May 1 only for
the rest, except for the Royal Guards and Spaniards, as
see note.
Officers. Men. Total.
1st Division, Darmagnac:
Brigade Chassé: 28th & 75th Line 35 1,759 1,794
Brigade Neuenstein: 2nd Nassau, 4th Baden,
Frankfort 101 2,577 2,678
Divisional Total 136 4,336 4,472
2nd Division, Cassagne:
Brigade Braun: 16th Léger, 8th Line 95 5,114 5,209
 Brigade Blondeau: 51st Line, 54th Line
Total Infantry 231 9,450 9,681
Cavalry:
Treillard’s Division: 13th, 18th, 19th, 22nd
Dragoons 44 994 1,038
Avy’s Light Cavalry: 27th Chasseurs, Nassau
Chasseurs 22 452 474
Total Cavalry 66 1,446 1,512
Artillery (3 batteries) and train 13 488 501
Engineers (1 company sappers) 2 129 131
Wagon train, &c. 3 195 198
Total Auxiliary Arms 28 812 830
The King’s Spanish Army:[1070]
Royal Guards, General Guy:
Grenadiers, tirailleurs, voltigeurs of the
Guard 80 2,300 2,380
Hussars and Lancers of the Guard 25 400 425
Line:
Regiments of Castile, Toledo, Royal
Étranger 70 2,000 2,070
Cavalry: 1st & 2nd Chasseurs, Hussars of
Guadalajara 70 600 670
Artillery: one battery 3 90 93
Total King’s Army 248 5,390 5,633
Total Army of the Centre 603 17,098 17,691
ARMY OF PORTUGAL
No Return available later than May 1.
Officers. Men. Total.
4th Division, Sarrut:
Brigade Fririon: 2nd Léger, 36th Line
Brigade Menne: 4th Léger, 65th Line 146 4,656 4,802
Divisional field battery and train
6th Division, Lamartinière:
Brigade Gauthier: 118th Line, 119th Line 71 2,496 2,567
Brigade Menne: 120th Line, 122nd Line 102 3,866 3,968
 Divisional field battery and train 3 173 176
Total Infantry Divisions 322 11,191 11,513
Cavalry:
Division Mermet:
Brigade Curto: 13th & 22nd Chasseurs 39 863 902
Brigade ? : 3rd Hussars, 14th & 26th
Chasseurs 42 857 899
Division Boyer:
6th, 11th, 15th, 25th Dragoons 67 1,404 1,471
Total Cavalry 148 3,324 3,472
Reserve Artillery:
One H.A., four field batteries 11 379 390
One company Pontoniers, train, artificers, &c. 10 763 773
Engineers: two companies sappers 5 190 195
Gendarmerie 5 169 174
Wagon train, mule train, &c. 35 898 933
Total auxiliary arms 66 2,389 2,455
General Total of Army of Portugal 536 16,904 17,440
Allowing for wastage May 1 to June 21, there may probably have
been 14,000 of all arms at Vittoria—say 9,500 infantry, 2,800 cavalry,
1,700 auxiliary arms.
Adding the totals of the three armies as above, we should get
2,032 officers and 68,231 men. But deductions of course must be
made:

(1) For decrease from May 1 to June 21 in the Armies of

Portugal and the Centre, and from May 29 to June 21 in the
Army of the South by normal wastage, and in the two former by
drafts sent back to France in May.
(2) For casualties in action since the campaign opened.

The latter would not be large, only Digeon’s Dragoons and

Villatte’s and Sarrut’s infantry divisions having been seriously
engaged during the retreat. The Burgos explosion cost Villatte over
100 men. We need not allow more than 1,500 as an ample estimate
for casualties in action.