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DOMINION OF CAN.

^v;-?!-

^^B

■

HARVARD COLLEGE
LIBRARY

TBANSFERBED

FROM THE

GKADUATE SCHOOL

BUSINESS ADMINISTBATION

HARVARD COLLEGE
LIBRARY

TRANSFEHRED

GRADUATE SCHOOL

BUSINESS ADMINISTRATION

}

The Dominion of Canada

The

Dominion of Canada

Its growth and achievement; its re-
lation to the British Empire; its
form of government; its natural and
developed resources; its home and
foreign trade; its national finances;
its banking and currency system;
and its railroads and its shipping.

By
Harvey E. Fisk

New York
Bankers Trust Company

1920

HAiVARD COLLCQC LIIIIA1IV

HCCEIVED THROUGH THE

Q*AOUAT€ SCHOOL OF!

«UiMeSS ADMiNISTflATION

To the Reader

THE best customer of the United States in the American
hemisphere is the Dominion of Canada and, with one ex-
ception, she is also our best customer among all the nations
of the world. That one exception is Great Britain.

In view of this fact the Bankers Trust Company has been
led to prepare this book in order that the company, its stock-
holders, clients and friends might have at hand for ready ref-
erence reliable data about Canada.

Because of the active cooperation of Canadians in public
and private life, acknowledgment of which is made else-
where, we have reason to believe that the data gathered here
are authoritative.

If the book proves to be useful to our friends, and espe-
cially if it helps to strengthen the bond of union between
business men on either side of that 3000 miles of *' unfortified
boundary line'' stretching from the Atlantic to the Pacific,
we will be fully rewarded for our effort.

Bankers Trust Company

New York, October, 1920

Contents *

CHAPTER PAGB

I The Land of Achievement i

II Canada in the Great War 5

III Canada's Credit Structure 22

IV The Dominion Finances 32
V The Currency 39

VI The Banks and Banking System 43

VII Area and Population 66

VIII Natural Resources 68

IX Manufacturing Industries 84

X The Tariff 91

XI Foreign Trade 96
XII The Invisible Trade Balance and the Exchanges 100

XIII The Railways 112

XIV Shipbuilding and Marine Activities 121
XV The British Empire Overseas 129

XVI The Government of Canada 137

XVI The Dominion Financial System 144

For Reference 151

Dominion Funded Debt 1 5 2

Quotations Dominion Bonds I J J

National Wealth 1 57

National Income 1 58

The Judicial Committee of. the Privy Council [British] 1 59

The Privy Council 1 62

The Cabinet 1 63

The Prime Minister 1 65

The Minister of Finance 1 66

The Treasury Board 1 67

The Auditor General 1 67

The Supreme Court of Canada 1 68

Authorities 170

Index 171

The Dominion of Canada

Chapter I
The Land of Achievement

THE characteristic of the Canadian people which most
impresses the observer is that of determination and
achievement.

Vision and courage were necessary to bring the Canada
of 1867 and the provinces of Nova Scotia and New Brunswick
— ^with their sparse combined population of less than three
million — into a confederation. It took courage, in 1870, to
bring into the confederation the almost limitless territory
stretching westward to the Pacific and northward to Hudson
Bay and the Arctic Seas.

It took courage to link together this empire, greater in
square miles than our own United States, by railroads running
into the untrodden wilderness, and not only was this done,
but now three lines stretch across the continent with numer-
ous branches tying together the manufacturing East and the
wheat-raising West and the mining North, and making pos-
sible, with their connecting steamship lines, an all-British
highway around the world. The Canada of fifty years ago
had no factories. They were created, and now Canadians
manufacture many of the commodities which they require
and are becoming exporters of manufactured goods.

For nearly fifty years the men of Canada were busy con-
quering the wilderness, subduing nature, breaking up the
prairies into great grain fields, developing vast Cote^t. \.x'd5:x^^

2 ] BANKERS TRUST COMPANY

opening up mines of gold and silver, copper and lead, coal,
asbestos, nickel, and other minerals; building cities, provid-
ing a splendid educational system with its common schools,
high schools, colleges and universities; organizing and devel-
oping one of the best banking systems in the world and bring-
ing into full flower a representative government admirably
adapted to meet the problems of a great democracy.

Then came the great war. Canada was ready. Immedi-
ately she set about mobilizing her man-power. Great armies
were transported over the sea and at once they began ^'to
do things.'' If there was a difficult position to be held, a hard
battle to be fought, an important post to be taken — the
Canadians made good. They had conquered the wilderness.
By the use of the same quiet determination, the same habit of
achievement, they could and would conquer the enemy.

Did Great Britain need food and ammunition, the Ca-
nadians could and would supply them and on credit too. So
far as her own armies were concerned, not only did they fight
for the empire, but Canada paid their bills. The war cost
Canada nearly sixty 'thousand lives and over a billion and
three-quarters in money. This gift of men and money in
defense of the Empire came from a people of less than nine
million.

Needless to say, such a record of achievement as is af-
forded by the history of Canada during the fifty-odd years
which have elapsed since ^'Dominion Day" 1867 is not due
to chance. Canada has been fortunate during this period in
having in political life and in business a group of able, re-
sourceful, morally strong, patriotic men who were not alone
capable in action but capable in leadership. They could not
have achieved if there had not been working with them a
splendid body of intelligent, determined and resourceful citi-

THE DOMINION OF CANADA [ 3

zenryy men and women of moral force and courage such as a
new country alone seems to develop.

The Canadians are looking forward to great growth in
population and in developed resources before the first cen-
tury of their national life is rounded out. There is every rea-
son to expect that such a growth will come. The Canada of
today, with the impetus gained from its progress in the past
fifty years, will without doubt develop during the next fifty
years into a very powerful nation.

As an evidence of Canada's phenomenal development the
latest available figures indicate that the dominion in relation
to nine other industrial countries now stands first in area,
second in potential water power, third in total railway mile-
age, fifth in total exports, sixth in pig iron production, total
exports and foreign trade and eighth in population.

The friendship between the Canadian people and our-
selves is traditional. Canada interchanges more business
with us than with any other nation, not excepting the United
Kingdom. We have only one greater customer than Canada
and that one is the United Kingdom. Our friendship and
our intellectual and business interests must commingle more
and more. Canada has scarcely begun to grow. Her friend-
ship and her business will be increasingly worth while. We
have nothing to fear from her efforts to develop her resources
and her manufacturing enterprises. Such development will
only increase her need for greater quantities of goods from
outside and her ability to pay for them. As her nearest and
most convenient market we will have only ourselves to blame
if we do not hold our present trade merely, but also add im-
measurably thereto.

In the future we shall meet Canada more and more in
friendly rivalry for trade in Spanish America, in the Orient

4 ] BANKERS TRUST COMPANY

and elsewhere. Canada's system of branch banking has un-
questionably assisted her greatly in inaugurating and develop-
ing trade in the West Indies and the countries bordering on
the Caribbean Sea. She is now reaching out for trade to
the Orient. Her habit of achievement will stand her in good
stead in this new departure. It is interesting to know that
in this last effort the banking interests of Canada and the
United States are in partnership — a happy augury and ex-
ample for future joint efforts at building up trade outside of
our own countries.

The following pages have been prepared with the purpose
of giving American business men a more intimate knowledge
of our northern neighbor and thus strengthening the bonds
between us and increasing the interchange of business to the
mutual advancement of the two countries.

Chapter II
Canada in the Great War and Today

TT is the proud boast of the Canadians that they were in
-*- the war from the very first. Canada raised and equipped
at her own expense an army of 595,441 men, whose bravery
is attested by the words of many witnesses and by the mute
testimony of the white crosses standing "row on row" in
Flanders fields.

Achievements of the Army

Of the total number enrolled, nearly 80 per cent., or
465,984 men, were obtained by voluntary enlistment. The first
division of Canada's expeditionary forces landed on the other
side of the Atlantic in the late Summer and early Autumn
of 1914 and after three months additional training in England
arrived in France on February 11, 1915. The total number
of men that served overseas was 418,052. The casualties
amounted to 218,433. ^^^ cannot use round numbers when
speaking of casualties. Of the total, 35,684 were killed in
action, 12,437 died of wounds and 155,839 were wounded,
the remainder having died of disease, died in Canada, or been
posted as missing. The more notable engagements in which
the Canadian troops fought were, in 191 5, in the second battle
of Ypres on April 22, and again in Festubert and Givenchy in
May and June. In 1916 the Canadians were very heavily
engaged at St. Eloi and at Sanctuary Wood and Hooge. In
September, October and November the four Canadian divi-
sions fought in the Battle of the Somme and Courcelette,
Moquet Farm and the Kenora, Regina atvd Dt.%\x^ \.\^t^^^%«

6 ] BANKERS TRUST COMPANY

In 1917 the Canadian troops bore the largest part in taking
Vimy Ridge and Arleux and Fresnoy, on April 28 and May 3,
and fought with great success in the advance on Lens and the
taking of Hill 70 in August. In 1918 the Canadian corps was
in the center of the western front in the second battle of
Amiens> August 8 to 17, advancing fourteen thousand yards
on the first day, the deepest advance made in one day during
the war. In the battle of Cambrai, which lasted from Sep-
tember 27 to October 9, the Canadians after heavy losses took
Cambrai, making large captures of men and material.

Naval Activities

While the military achievements of the sons of Canada
were notable, the services rendered by Canada's little navy
were also an important factor in bringing the war to a success-
ful conclusion. At the beginning of the war the naval organi-
zation of the dominion consisted of one seagoing cruiser on
the Pacific coast and one on the Atlantic. The staff of ex-
perienced naval officers was small. It immediately became
necessary to develop from this insignificant organization a
staff capable of superintending the transportation overseas
of troops and supplies, and to provide a coast patrol service
to protect commerce from the marauding German vessels
and submarines, and also to maintain in cooperation with
the British Admiralty an efficient naval intelligence depart-
ment. The organization to accomplish this work, with one
or two exceptions, was effected by the efforts of the original
staff supplemented by the assistance of a few retired naval
officers and many recruits from mercantile life and from
among Royal Naval Reserve][|officers available in Canada.
The best tribute to the efficiency of the organization so formed
is the fact that many hundreds of thousands of men and great

THE DOMINION OF CANADA [ ^

quantities of supplies were transported overseas without the
loss of one life through marine accident.

Rehabilitation of Returned Soldiers

The question of post-war organization for men returning
from overseas was dealt with by the government of Canada
early in 191 5> as soon as casualties commenced to arrive in
Canada. At first a commission was formed of leading busi-
ness men and later a department of government. The De-
partment of Soldiers' Civil Re-Establishment, was created
to deal with the problem. The work undertaken involved
the establishment and maintenance of hospitals for tuber-
culosis, insanity and general treatment; the provision of vo-
cational training, including occupational therapy and ward
occupation in hospital; the payment of allowances to men
undergoing treatment and training; the establishment of
labor bureaus, in order that the returned soldier might easily
find employment; assisted settlement of returned soldiers on
the land, and an adequate pension system. War service
gratuities and other benefits have been passed by parliament
and at the last session an act providing for life insurance
without medical examination wa$ placed on the statute book.
In many directions, notably in regard to vocational training
and the manufacture by the government of prosthetic* ap-
pliances, Canada was the pioneer. To a large extent the re-
habilitation schemes of the other allied countries have been
based on Canadian experience. The expenditures for these
several purposes up to June, 1920, aggregated over $288
million.

National Finance — The Money Cost of the War

To meet the expenses of her armed forces Canada dis-
bursed to March 31, 1920, $1,670 million. The total eiiL^exv-

%'. #•/ Api^iaacet for fubstituting in the human \»d'v vomit «s>\%s^'«^.'VU(\*

8 ] BANKERS TRUST COMPANY

ditures of the dominion which may be charged to war
account amount to $2,027 tnillion. In this total, in addition
to the direct military expenditures, is included pensions, in-
terest on the war debt and other items clearly attributable
to the war. The increase in the gross amount of the national
debt due to the expenses of the war up to March 31, 1920,
was $2,499 million, bringing up the total debt to $39043
million. The increase in the net debt was $1,628 million.
All but about $486 million of the total debt was held at home.

The national wealth of Canada is officially estimated at
$16,000 million. Therefore these eight and a half million
of patriotic people besides mobilizing seven per cent, of their
number to fight, loaned their government during the war
period and up to March 31, 1920, nearly 15 per cent, of
the national capital, about three hundred dollars for every
man, woman and child in the dominion. But this was not
all, by any means. Though scattered over a vast territory,
stretching from ocean to ocean and from the Great Lakes
into the unknown wilderness at the north, and keenly feeling,
because of these conditions, the crippling shortage of man
power, they paid greatly increased taxes, kept up the pro-
duction of their farms and at the same time became important
producers of ships, munitions of war and clothing; while over
and above this they even established credits for the mother
country so that these supplies might be made available to her,
without increasing the strain of "financing** upon her people.

Look at the record as given in this table of the inter-
change of credits between Canada and Great Britain.

(00,000 omitted)

Years ended March 31 1915 1916 1917 1918 1919 n920
From Great Britain . . 4,9 147,9 55,9 410,9 61,9 33,8
From Canada .... 10,2 186,3 181,8 361,2 385,8 148,0

^TojMBuary 3i

THE DOMINION OF CANADA [ 9

For the entire period the advances from Canada to Great
Britain exceeded those from Great Britain to Canada by
^558 million. Howeyer, adjustments of various kinds had
reduced the net balance in favor of Canada by March 31,
1920, to ^138 million. This was in addition to some $200
million owed by the British government to the banks of
Canada.

War Financing and the Banks

The outbreak of the war in August, 1914, found Canada
in an economic position not very favorable to resisting a
great strain. The redeeming feature was the strong position
of the banks which has been a marked feature of Canadian
finance during the entire period since that date.

Substantially the only emergency banking legislation
adopted was that which authorized the dominion government
at its discretion to make advances to the chartered banks by
the issue of dominion notes upon the pledge of securities and
which suspended for the same period the redemption of
dominion notes in gold. The banks were also authorized for
a period terminating two years after the conclusion of peace
to make payment in satisfaction of their liabilities in their
bank notes instead of in gold or dominion notes, thus prac-
tically giving to bank notes the status of legal tender for
this period and they were also authorized to issue excess
circulation.

The use of the facilities of the banks in connection with
the financing of the war was in accordance with the best prac-
tice. Care was taken not to load them down with permanent
advances to the government. The form which, in most cases,
the advances to the government took was in the purchase by
the banks of treasury bills, which appear to be of the same

lO ] BANKERS TRUST COMPANY

general character as British treasury bills or our own certifi-
cates of indebtedness. As may be seen by reference to the
dominion debt statement printed on a subsequent page, the
maximum of ''temporary loans" at the end of any fiscal year
was about $363 million on March 31, 1919. Unquestionably
a substantial portion of 'this amount was held by investors
other than the banks, so that we can see that at no time were
the facilities of the banks unduly strained because of govern-
ment requirements. We understand that in August, 1920, the
banks held only $75 million Dominion of Canada treasury
bills. The use made of the facilities of the banks was chiefly
for the purpose of tiding over periods between the placing
of permanent loans.

In addition to loans to the government there were no
doubt substantial loans to private investors against govern-
ment securities, but the bank statements do not differentiate
such loans. We find that current loans to the general public
in Canada increased from $823 million on March 31, 1914,
to $1,322 million on March 31, 1920, an increase of almost
exactly $500 million. We are advised that of such increased
loans only $125 million were made for the purpose of
carrying government securities.

The facilities of the banks were used not only to assist, in
the distribution of dominion government securities, but also
to an important extent to assist the dominion and Great
Britain and, to some extent, continental countries to finance
their purchases in Canada of munitions, foodstuffs and other
war materials. The phenomenal wheat crop of 191 5 gave to
Canada at the very outset an enormous exportable surplus
and the huge war orders placed by Great Britain gave rise to
a great degree of commercial prosperity in industrial centres.
The combination of the exports of foodstuff's and of manu-

THE DOMINION OF CANADA [ 1 1

factures caused a great increase in the Canadian foreign
trade, which has elsewhere been commented upon, and was re-
flected in the marked increase in the loans and deposits of the
banks. At the time of the armistice the banks were lending
to Great Britain $200 million, which included advances made
on behalf of the British government for carrying a large part
of the wheat crop of 1918. The dominion government also
made advances directly to the imperial government for this
last purpose, part of which the banks took up in the shape
of dominion government treasury bills. At the same time
the banks were making other substantial advances to the
dominion government.

The advance of $200 million to the British government is
represented by British government treasury bills. These
constitute a substantial part of the approved securities re-
ferred to on page 40, as held by the dominion government
under the Finance Act of 1914 against the dominion note
issue. Thus this advance, of which $50 million has been
repaid, while technically made by the banks actually came
from the dominion treasury in the form of dominion notes
issued to the banks in exchange for the British treasury bills.

A study of the comparative tables of assets and liabilities
of the chartered banks discloses the fact that the total re-
sources of the banks increased about 100 per cent, from
March 31, 1914, to March 31, 1920. The deposits of the gen-
eral public in Canada have approximately doubled, increasing
from j^i million to $1,855 million. While the increase in
the assets and the liabilities of the banks reflect, as in the case
of other countries, an inflation of credits made necessary for
the purpose of war finance, such increase is unquestionably
to a great degree due to an actual and probably a permanent
increase in business activities — Canada's legitimate reward

1 2 ] BANKERS TRUST COMPANY

for her efforts to assist in the maintenance of law and order
throughout the world.

Canadian Industries and the War

The war acted as a great stimulus to all lines of Canadian
productive effort. Agricultural production was maintained
at a high level, while the war prices brought unusual pros-
perity to the agricultural classes.

The military requirements of the government and of the
mother country and allied nations led to intensive efforts
along manufacturing lines, while the prosperity of the
farmers and of the industrial classes created an added demand
for home and foreign goods of all descriptions. Therefore it is
notsurprisingtofind that one notable result of the war has been
greatly to increase the importance of Canada as an industrial
community. Canada has had a protective tariff* for 42 years.
The present dislocation in exchange, referred to more in detail
elsewhere, is acting also as a further stimulus to home manu-
factures. Probably to-day there are employed in manufac-
turing pursuits at least a third more people than were so
employed before the war, while some two million people, or
nearly 25 per cent, of the entire population, are said to be
directly or indirectly dependent for their living upon the
manufacturing industries.

Thus one important result of the war to Canada has been
to bring about, much earlier than would otherwise have been
the case, a transition from a status where agriculture predom-
inated to one where the manufacturing industries are of the
greater importance. Unquestionably this relation will be a
constantly widening one with the lapse of time. However,
it will not be because agriculture will be actually of less im-
portance, for agriculture and its kindred activities will always

THE DOMINION OF CANADA [13

be one of the fundamental resources of Canada. Her other
natural resources, her mines, forests and fisheries will also
become of increasing value as time goes on, especially be-
cause of the greater extent to which these products will be
used in manufacturing and the arts.

In the past decade the value of Canada's agricultural prod-
ucts has increased more than 300 per cent, from $663 million
in 1910 to $1,975 million in 1919. The value of manufactur-
ing products has increased in about the same ratio, from
$1,166 million in 1911 to $3,451 million in 1918. Statistics
for 1919 and for 1920 to date are not yet available. When
compiled they probably will show some decline from the war
maximum but there is every indication that Canada is booked
for great developments along manufacturing lines in coming
years.

Foreign Trade Under War Conditions and Since

The total foreign trade of Canada in the fiscal year ended
March 31, 1920, was $2,351 million, comparing with $1,073
million in the year just before the war, that is the year ended
March 31, 1914, and with $548 million in 1909.

Of course it must be borne in mind that price inflation as
a result of war conditions to a considerable extent vitiates the
value of all such comparisons of the foregoing. Still, after
making liberal allowance for this fact, actual conditions today
show a marked increase in productive output, and in trade
done, over the pre-war status.

Canada interchanges more business with the United States
than with any other nation in the world, although the trade
is not a balanced trade, the imports from the United States
largely exceeding the exports to our country. On the other
hand, the United Kingdom is Canada's second best customer

14] BANKERS TRUST COMPANY

but in her case the exports from Canada largely exceed the
Imports from the United Kingdom.

From the point of view of the United States, Canada has
for years ranked as our second best customer, the United
Kingdom coming first. The war conditions placed France
ahead of Canada in 1916 and 1917. However, this was a tem-
porary situation and the indications are that for years to
come Canada will probably continue to be our most impor-
tant customer next to the United Kingdom, unless the ^'Made
in Canada" movement referred to in the chapter on manu-
factures assumes important dimensions. Even so, this move-
ment, while it may change the character of the trade between
the two countries, is not likely to diminish the magnitude of
this international trade, as Canada is destined to grow rapidly
and her requirements for coal and coke necessary to run her
factories and for the raw materials of manufacture, as well as
for goods in excess of her own capacity to manufacture, will
steadily increase.

In the years ending respectively with March 31, 1914,
1918 and 1920, that is, with the pre-war year, the year of
greatest war activity and the year following the war, the
official statistics of the trade of Canada with the United
Kingdom, with the United States, and with all other coun-
tries show that in 1914 Great Britain had 48.8 per cent, of
Canada's export trade, the United States 38.9 per cent., and
all other countries 12.1 per cent.; while the United States
had 63.9 per cent, of the total import trade. In 191 8, Great
Britain had 54.3 per cent, of the export trade, but the United
States had 82.2 per cent, of the import trade. In 1920 the
United Kingdom and the United States almost equally
divided 77 per cent, of the export trade, but the United
States alone had over 75 per cent, of the import trade.

THE DOMINION OF CANADA [ 1 5

During the war period Canada's exports of home produce
to France assumed important dimensions, increasing from
^39632,000 in the year prior to the war to $10,499,000 in the
next year, then to $33,703,000, then to $64,039,000, and
finally to $201,526,000 in the year ended March 31, 1918. In
the next year there was a falling off to $96,103,000, while in
the year ended March 31, 1920, the total was $61 million.
This amount was many fold that of the pre-war period. It
remains to be seen whether this improvement can be main-
tained*

The exports to Italy had increased largely in the post-war
period, amounting in the last fiscal year to over $17 million
compared with only $514,000 in the year ending March 31,

Both import and export trade with the Americas, outside
of the United States, particularly with the West Indies, is
growing handsomely, while the trade with the Eastern Coun-
tries, especially with Japan, is developing to an important
extent.

A change in the method of reporting trade statistics ren-
ders impossible comparisons as to the nature of the trade of
the last fiscal year with that of previous years.

Both exports and imports were so largely affected by the
war conditions in the former of these years that the compara-
tive value of the data is largely diminished on that account.
Still, it is evident that the trade of Canada in the first post-
war year maintained, in a wonderful manner, the increase over
the pre-war years which it developed during the period of the
war. The exports and the imports each increased, giving an
increase of $166 million in the total trade of the country.

From an official statement we know that cartridges and
other explosives accounted for about $386 million of the ex-

1 6 ] BANKERS TRUST COMPANY

ports of the fiscal year ending March 3i» 1918, and for about
$251 million for the next year, but amounted to only a little
over $12 million in the last fiscal year; while in the case of the
imports articles for the army and navy amounted to over $145
million in the first of these years, just under $56 million in the
second and only a little over $2 million in the third. Other
war items cannot be so readily segregated. Thus everjrthing
points to a healthy and growing trade situation on a much
higher level than that of the pre-war period and with a re-
adjustment in the relative importance of the various products
where, while the actual volume of agricultural and animal
products will probably increase rather than diminish, their
proportionate value will decrease because of the growing im-
portance of the products of the mine, the forest, and of
manufactures.

Foreign Trade in the First Quarter of I g 20

The business of Canada with the United Kingdom and for-
eign nations established a new record in the first quarter of
the present fiscal year (April to June, 1920, inclusive), when
the total trade reached $5833^ million, compared with not
quite $445 million in 1919 and $Sog}4 million in 1918.

Imports from the United Kingdom and the British Do-
minions overseas increased in a marked way while exports de-
creased in a surprising manner. The result was that imports
and exports about balanced while in each of the other two
years under review the exports amounted to almost exactly
five times the imports.

In the case of trade with foreign countries we find this
year a substantial increase both in exports and imports over
191 8 and a heavy increase over the business of 1919 which for
these months fell below the business done in 19 18. As usual

THE DOMINION OF CANADA [ 1 7

the United States had the bulk of the business, the imports
from our country for the three months reached the enormous
total of $221 J^ million, comparing with just under $162
million in 1919 and not quite $216 million in 1918 when much
war material was passing through Canada. Exports from
Canada to the United States after falling from $103 million in
191 8 to just over $88 million in 1919 reached the record total
of over $113 million. However, this total was only a little
over one-half of the imports from the United States so that
on balance we are still a heavy creditor. Out of the total
trade of Canada for the three months, $583 J^ million, the
trade with the United States was $334>^ million or just under
60 per cent.

American Investments in Canada

Not only has manufacturing by Canadians for^Canadians
and for export, been greatly stimulated by the war conditions,
but these same conditions have attracted to Canada large
amounts of American capital to be similarly employed. There
are no available statistics as to the amount of American cap-
ital so used, but it must run into the millions. There are said
to be in Canada some six hundred American owned plants.

The Americans have invested large sums in Canadian
government, provincial and municipal securities. It is esti-
mated that our people to-day have invested in Canada up-
wards of $1,250 million as against about one-fifth of this
amount in 1914. The sums annually payable to our citizens
for interest, profits, freights, insurance, and so forth, probably
now aggregate or perhaps even exceed $75 million a ^ear.

The Invisible Trade Balance

For the period of the war and since, the payments of the
Canadian people in or through London for interest^ i^co&l^^

1 8 ] BANKERS TRUST COMPANY

insurance and freights are estimated to have aggregated some
$iyOOO million, while similar payments to the United States
have probably amounted to around $420 million. The Cana-
dian government and the Canadian banks have made ad-
vances to Great Britain and foreign countries of nearly $400
million and Canada has repurchased around $200 million of
her own securities sold to London in pre-war years. Sales of
Canadian securities in London during these seven years
amounted to about $300 million, chiefly in I9i4> before war
conditions became acute.

As a result of these cross currents of investment funds, in-
terest, profits, insurance, and so forth, Canada is supposed to
have paid Great Britain on balance during and since the war
over $1,250 million and to have received from the United
States on balance nearly $500 million. These large payments
and receipts on account of the movement of the so-called
^'invisible" imports and exports added to the balances arising
from the exchanges of goods have resulted in total net bal-
ances due from Great Britain and foreign countries other than
the United States aggregating over $2,000 million, while for
the period Canada was debtor to the United States for over
$1,000 million.

The Dislocation of the Exchanges

Ordinarily the amount due to the United States and that
due from the United Kingdom and other countries would be
cleared through London and the net resulting balance settled
by gold shipments or by increased investments by the Scotch,
English and Continental peoples in Canadian enterprises,
farm mortgages or public securities.

The dislocation of the New York-London and Continen-
tal exchanges and the consequent dislocation in the New

THE DOMINION OF CANADA [ I9

York-Montreal exchange has prevented the usual normal
methods of settling these international balances and has
brought about a situation where purchases in the United
States are heavily penalized and similarly where British pur-
chases from Canada or investments there are penalized.

In these conditions we find one of the most trying eco-
nomic results of the war, results, however, which are proving to
be a great stimulus to Canadian home manufacturing for
home consumption, for a ten per cent, premium on New York
exchange is equivalent for Canadians to a ten per cent, ad
valorem tariff against American made goods and in favor of
the products of Canadian factories. These matters are
treated more in detail in subsequent chapters.

Railroads and Steamships under
Government Control

With the exception of Germany, Canada emerges from the
war as the nation of the world having the largest number of
miles of government operated railways. She has also acquired
as a by-product of war a considerable government owned mer-
cantile marine. Of a total railway mileage approximating
forty thousand, more than half is comprised in the Canadian
national system, the operation of which in 1919 resulted in a
deficit of about $48 million. However, these results were
those of a year of mixed private and government ownership
and under semi-war conditions. Much better returns are
looked for in the future.

During the war Canadian shipyards constructed around
900 ships for Great Britain, France, Norway and Belgium.
These were many of them small vessels but among them
were a number of large steel freighters. At the close of the
war Canada had some seventeen steel ship-building plants

20 ] BANKERS TRUST COMPANY

employing upwards of 20,000 men, while in 1914 she had only
two similar plants.

With the completion of the government contracts the
industry was faced with disintegration unless the yards could
be utilized to build ships for the mercantile service. At this
juncture the government stepped in, as in Canada it has a way
of doing, with a view to saving the industry for the operatives
and their employers and with a view to creating a govern-
ment owned mercantile marine which would carry the prod-
ucts of Canada's fields and factories to the ends of the earth.

To own and operate the ships constructed under govern-
ment auspices the government has organized the Canadian
Government Merchant Marine, Limited, This company is
represented in Great Britain, for the North Atlantic trade,
by the Cunard Company. Announcement has very recently
been made of the consummation of an important agreement
between Messrs. Alfred Holt & Company (managers of the
Blue Funnel Line), The Canadian Government Merchant
Marine, Limited, and the Canadian National Railways, pro-
viding for the establishment of a joint steamship service be-
tween Vancouver and the Far East to be maintained by an
equal number of vessels owned by each steamship interest.
The Canadian Government Merchant Marine, Limited, will
be represented in the Orient by the agents for the Holt inter-
ests. Thus the Canadian undertakings will secure the advan-
tage of the facilities of an old and powerful organization. On
the other hand Messrs. Holt will secure the support of the
Canadian National Railways in the development of business
for their steamers in the joint service.

The policy of the Canadian Government Merchant Ma-
rine, Limited, appears to be one of opening up new services, of
supplementing the existing services and of working on friendly

THE DOMINION OF CANADA [ 2 1

terms with the old steamship organizations, thus securing
the advantage of the co-operation of such well-managed pri-
vate enterprises.

It will be of deep interest to Americans south of the inter-
national line to watch the outcome of these large scale exper-
iments in government ownership and management of an im-
portant part of the transportation facilities of a nation. It
will also be of interest to see how the privately owned and
publicly owned properties get along together.

Chapter III
Canada's Credit Structure

/^FFICIAL estimates place the national wealth of Canada
^^ (i.e., the aggregate internal wealth of the people) at
$i6>ooo million;t while $2,500 millionf may be taken as a
fair estimate of the present annual national income of the
dominion (i.e., the aggregate income of the people). The
gross debt, aggregating $3 ,043 million, amounts to only 19 per
cent, of the estimated national wealth, while the annual
charge for interest and for a sinking fund sufficient to pay off
the whole of the gross debt in 75 years amounts to only 5.68
per cent, of the estimated annual national income.

The following tables demonstrate the stability of the Can-
adian public debt, the safety and convertibility of the bank-
ing and currency credit fund by means of which the trade and
commerce of the dominion are largely carried on, and the
additional strain — ^yet well within the limits of safety — ^that
is laid upon such fund and the gold reserves by the increasing
prices of commodities.

National Assets and Liabilities Compared

There are substantial assets held by the government that
in the ordinary course of things will be applied to the reduc-
tion of the gross debt. These were estimated by the minister
of finance in his budget speech of May 18, 1920, at $741
million.* For the purpose of this statement, however, all

tSee pages 157 and 158 for detailed calculation *See page 36.
22]

THE DOMINION OF CANADA [ 23

these offsetting assets are set aside against ^'contingencies"
in order that the burden of debt may be appraised at the
maximum.

I. DOMINION DEBT STRUCTURE

March 31, 1920

(000 omitted)

Funded Debt |2i55o,398

Temporary Loans 73,956

Special Funds

Bank Circulation and Redemption

Fund 15,959

Savings Banks 42,000

Trust Funds 13,500

Province Accounts 11,920

Miscellaneous and Banking Accounts 33,967 107,346

Dominion Notes 311,900

Gross Debt $3,043,600

National Wealth estimated at $16,000,000

Percentage of Gross Debt to National Wealth . . 19%

Estimated Net Annual Interest charge
on whole debt $135,000

Annual Sinking Fund to extinguish
gross debt in 75 years; improved
at,say,3K% 7,5oo

Annual charge for 75 years to meet interest on, and
to amortize by sinking fund, principal of gross
debt $142,500

National Income estimated at $2,500,000

Percentage of Annual Interest and Sinking Fund
charges to Annual National Income 5*68%

24 ] BANKERS TRUST COMPANY

A Comparison of National Debts

The following tables compare the debt of Canada with that
of our own country and with the debts of Great Britain,
France, Italy and Germany. In every instance debts have
increased since the war ended. In the cases of Canada, Great
Britain and our own country the maximum seems to have
been reached and a beginning made in debt reduction.
France and Italy probably have also about reached the peak
of their debts, but steps toward reduction will probably be
slow. Reparation payments without doubt will add to the
debt of Germany.

It will be noted that the incidence of the debt of Canada
and of the debt charge is markedly less in relation to wealth
and income and also per capita than in the case of any coun-
try included in the table except the United States.

Consideration should also be given to the growing pop-
ulation and the undeveloped resources of the dominion.
The present population of eight and one-half to nine million
should at least double itself within from seventeen to twenty
years. This increase would necessarily be accompanied
with corresponding — though not proportionate — ^increases
in the national wealth and the national income. While
therefore the burden of the gross debt cannot, in view of the
ratios set out, fairly be considered as unduly severe, it will
none the less be lightened year by year in increasing measure
by the accumulating increase in population, wealth and
income.

The credit structure therefore represented by the public
debt may be considered sound and satisfactory.

THE DOMINION OF CANADA

[25

DEBT AND INTEREST CHARGE COMPARED WITH ESTL

MATED WEALTH AND INCOME OF CANADA AND

OTHER BELLIGERENTS IN THE LATE WAR

APPROXIMATE STATUS AS OF JUNE 30, I92O

(000,000,000 omitted)

Nation

Canada . . .
United States
Great Britain
•France . . .
••Italy . . .
Germany . .

Debt

Wealth

Interest

Income

|i6

19.0

$o.it

$2)4

300

8.0

I.O

120

31.6

1-7

51.1

1.8

36.0

0.7

2.9

Interest

Income

5.40
1.69
9.40
15- 10
9.00

•December, 1919. ••October, 1919.

tll35 nullion. tMost difficult to estimate. Before the war wealth placed at
180,000 million; income at 110,000 million. German authorities claim heavy losses.

DEBT AND INTEREST CHARGE COMPARED WITH ESTI-
MATED WEALTH AND INCOME OF CANADA AND
OTHER BELLIGERENTS IN THE LATE WAR

PER CAPITA BASIS

Population

Debt

Wealth

Interest

Income

(In

Nation

per

millibns)

Capita

Canada

fa38

J1777

$15.00

$277

107

United States

224

2803

9.34

560

Great Britain

828

2608

36.95

391

France

1 150

2250

45.00

300

Italy

500

1388

19.44

222

Germany

1050

48.33

Deposit and Note Circulation vs. Gold Reserves

The table printed on the next page has been constructed
to show the relation between the note and deposit liabilities
of Canada and the gold reserve.

26]

BANKERS TRUST COMPANY

11. BANKING AND CURRENCY
CREDIT STRUCTURE

(In millions of dollars)

March 31

1914^

1915

1916

1917

I918

1919

1920

LIABILITIES

Currency

fDominion Note 3.

114

152

168

160

190

207

214

♦Bank Notes . .

102

131

165

185

188

Total Notes. .

198

238

270

291

355

392

402

Deposits

Chartered Banks

In Canada . . .

1,038

1,064

1,186

1,412

1,601

1,866

2,145

Outside Canada.

137

120

143

197

231

244

365

^Savings Banks

112

100

109

* Total Deposits

1,269

1,277

1,424

1,721

1.932

2,219

2,607

Credit Structure .

1,467

1,515

1,694

2,012

2,287

2,611

3,009

GOLD RESERVES

Banes

In vaults ....

In Central Gold

Reserve . . .

• • • •

* • • •

Government

Against Savings

Deposits . . .

Against Dominion

Notes

116

114

116

100

Total Gold Re-

serves . . .

147

161

189

202

216

218

%Credit Structure .

lO.O

10,6

22,2

20.0

Q.4

S.3

tTotal outstanding, less notes in ''Central gold reserves."
*Total outstanding, less **notes other banks" held as assets.
« Exclusive of deposits in Trust Companies and Savings, Loan and Mortgife
Companies which are not emi^oyed in financing trade and oommeroe.
^See table page 57>

The structure of banking and currency credit represent-
ing the "credit fund" by means of which the trade and com-
merce of the country is largely financed may be approxi-

THE DOMINION OF CANADA [ ^^

mately measured by the banks' deposits and by the bank
notes and the dominion notes in circulation as above set out.
The foundation of this credit structure is of course the gold
reserves held in respect thereof. Upon their sufficiency public
confidence in the soundness of the structure and the conver-
tibility of the obligations comprising it largely depends. A
study of the foregoing table develops the facts that the
gold reserves held there-against increased about 48 per
cent, during the war period but that since then they have
gradually decreased.

From the beginning of the war until the armistice the gold
reserves were maintained at about ten per cent, of the credit
structure. Since then they have shown a tendency to fall
until in recent months they have averaged only a little over
six per cent. This compares with a reserve for Great Britain,
similarly calculated, of slightly over five per cent, and for the
United States of just under seven per cent.

The shareholders of the Canadian chartered banks are
subject to double liability — in case of necessity — in respect
of their capital stock holdings. Hence the structure is further
protected by the double liability of the shareholders of the
banks, by the liability of the dominion government for the
uncovered dominion notes in circulation and for the uncov-
ered post office and dominion government savings banks
deposits and by the surplus assets of the chartered banks
over and above the gold reserves. These reserve resources
together with the gold reserves above mentioned amounted
on March 31, 1920, to approximately $400 million in excess
of the sum of the above credit fund and of all other liabilities
of the banks, not included therein. Hence the soundness of
the structure and the convertibility of the obligations com-
prising it seems, well assured.

rfj

Incrr^JPrica and the Credit Structure

TV Mow, atfc pm for dK pan ri. v«« ;„
P««m fcnn the ind« Eunifcr for S^J^ '" ""
liBfJ I,*. a„ r J- ^"^^ pices as offi
-^djr d« Canaiai, Depa^nen, of tabor

BuniCT bat been cakulated.

VarevUMvii

m. PRICES
." r»M 191S I9r6 .917 ,9,8 ,,,5 ,,„

W MS i;« as «S9 j;7 3^
■ « ^^ « 'S* .40 ,u

■■ SS4 tfi.0 64J g6js i02.rS1s4.74
TV niaear it> prioei dun by die above table, partly
aoKic in- Af infjrtiM! rfoodhs and panty the effect of die
uTuttu: aenaati *r jtv^ a»i semot luought about by the
«:. hw flJwofcV jnardr iscKunf tV saain of finanang
wiict- iuf tr iv Vrac fcr tV ban^ and currency credit
tcm^iCT JDC tV^tK K<iBUDOB tnereof. Tliu is a condition
I'jKi viiuc BflBt nvmwf jit uacing at toe present tinie.
}; V a e aa e a^ ir .-iBfure dbr trade fiBandog power of the
.-wtc K T J L i r iP i A- ^iB^ » 9R 9 ID TaUe JI (iriu'cb may be
.-adf* :» *«MOK £««& xracmre") oa Maicb 31, igjo,
VFTT rw Kiver c «m^' km |< «i» i Vd tbe 191^ Jevd of
irv-w WW Hmi a i«»- IV "We faid aftjfioq DuUin
wnuif «ic wua««f n liseiVfwcfcw jdJ saJe on t/ie 1914
tr^ /r~irv» Aksrr. ^H3fa■BiB^^\-tl^1moditinofthe
vane a*' fi::~ akSw 3i 1 ^rna wtt at' tone; white on the
•£Ar ««« ViTKSf c «nai knv inatrd onlv cJic purdtaw
am sat wN? jmh».'«d»*iiW"Bsofconunodi(M^of

THB DOMINION OF CANADA [ 29

in 1920 was only 39 per cent, of what it would have been had
1914 prices prevailed. This shows the need for emergency
currency and credit if the financial machinery of trade and
commerce is to be kept going, and because of the vital neces-
sity to the world of that machinery, it justifies the creation,
within limits, of such emergency currency and credits; while,
at the same time, it shows how a fall in prices will release
the emergency currency and credit from employment and
increase the efficiency of normal resources.

The Gold Foundation

Coming now to the gold foundation of the structure —

On the basis of the 1920 gold reserves of 6.4 per cent., the
credit required to finance one unit of trade on the 1914 price
level of $137 per unit would call for gold cover of $8.77, while
the credit required to finance the same unit of trade on the
1920 price level of JS349 per unit would call for a gold cover of
$22.34. That is to say, $100 of the gold reserves of 1920 would
have supported credit sufficient to finance 11.4 units of trade
on the 1914 price levels, while it would only support credit
sufficient to finance 4.45 units of trade on the 1920 price level.
Hence the trade supporting efficiency of gold on the 6.4 per
cent, standard was in 1920 only 39 per cent, of what it was in
1914. The loss in efficiency of the trade financing power of the
credit structure of 1920 is, therefore, obviously the same as the
loss in efficiency of the trade supporting power of the gold
foundation of the structure in 1920, but in the interest of
clarity it has been set out in detail. This shows the additional
strain that the financing of trade and commerce under the
influence of increasing prices has laid upon the gold reserves,
while at the same time it illustrates the automatic recovery
of underlying gold strength that falling prices m\\.W«v^'3ici<»ax.

30 ] BANKERS TRUST COMPANY

Canadian bankers expect their gold resources to be in-
creased some $150 million by the repayment, within the next
twelve months, by the British government of advances here-
tofore made by the banks. This payment is relied upon to
assist materially in reducing the credit inflation which now
exists, and to help in reestablishing the percentage of gold
to credit liabilities.

The Present Credit Situation

The statement of the chartered banks for June 30, 1920,
reflects no apparent check to the expansion in bank credits,
for deposits are still increasing and the loan accounts con-
tinue to grow. It is gratifying to observe that govern-
ment expenditures for the first quarter of the current fiscal
year have decreased around 50 per cent, from the expen-
diture of the same quarter of 1919, while revenue receipts
have increased over 36 per cent. The debt appears to
have about reached its maximum. The temporary debt, the
most dangerous form of debt so far as inflation of credits is
concerned, shows a marked decrease from the maximum of
about $363 million reached in 1919, being on June 30, 1920,
not quite $89 million. Therefore, it would seem that there
would be realized the expectation of the finance minister
expressed in his budget speech delivered last March that
'^the revenue of the year and cash assets available should
at least not only carry current expenditure but retire** certain
floating obligations maturing during the year aggregating
around $74 million.

On a critical examination, therefore, of the financial posi-
tion of the dominion it must be admitted that the dominion
debt is well secured; that the banking and currency credit
structure by means of which trade and commerce are largely

THE DOMINION OF CANADA [ 3 1

carried on> while considerably expanded, is sound; that while
high prices have laid a strain — in common with most coun-
tries — upon that structure and its gold foundation, neither is
as yet unduly strained; and that on the whole the financial
position of Canada is at present satisfactory with every prom-
ise of increasing strength in the future.

Chapter IV
The Dominion Finances

THE Canadian national finances are well managed. The
annual income for several years preceding the war ex-
ceeded the annual expenditure by a substantial amount, say
in excess of ^40,cxx),ooo.

The financial policy of the government during and since
the war has been directed along two main lines: First to fund-
ing the war indebtedness so as to postpone its maturities to
periods well beyond the end of the war; and secondly, by in-
creased taxation on the one hand and reduction of current
expenditures on the other, to be in a position to meet from
annual income all annual outlays, including increased inter-
est and pension charges and in addition a substantial amount
of the war expenditure itself.

National Revenue and Expenditure

Comparative tables of receipts and expenditures for the
six fiscal years ending March 31, 1920, follow. The statistics
for the year 19 14, the last year prior to the war, are given for
comparative purposes. It will be noticed that the total ex-
penses for the war period and the subsequent "clean up"
period amounted to ^3,143 million. Of this sum 47.72 per
cent, was raised from taxation and other revenue receipts,
while 52.28 per cent, was borrowed. Our estimate of the cost
of the war to the dominion to March 31, 1920, is $2,027
million. The increased net debt of $1,642 million is 81 per
cent, of this amount; thus 19 per cent, of the war cost appears
to have been met by taxation.

THE DOMINION OF CANADA

[33

DOMINION EXPENDITURES
(00.000 omitted)

Yean ended March 31

X914

X915

1916

X917

19x8

I9I9

1920

ToUl
19x5-20

Okdinary
Debt Charge ....
Provinces

Subeidiesto . . .
Collecting Revenue —

Cuttomi ....

Excise

Income and Busi-
ness profits . .

Post Ofi&oe ....

Dominion Lands .

Railways

Militia and Defense .
Pensions ...
Civil Government
Publfc Works . . .
Other items . . . .

15.0

II.O

3.8
0.8

• • • •

12,8

3.3

X4.9

XX.0

0,3

6.0

X9.0

264

x8.o

II.O

3.8
0.8

• • • •

16.0

3.7

13.9

xo.o

0,4

6,0

X9.0

33.0

24.0
1 1.0

3.7
0.9

• • • •

x6.o

3.4
20.7
5.0
1.0
6,0

X2,0

26,0

38,0
II.O

3,7
I.O

• • • •

16.3
2.8

27.1

4.0
3.0
6.0
9.0
26.0

52.0

I1.0

4.0
1,2

0.1
18,0

2.5
34.8
4.0
8.0
7.0
7,0
28.0

80.0

II.O

4.3
I.I

0.5

19,3

2.2

45,5
3.3

18.0
7,0
6,0

33,8

108.0

ix,o

4,6
1.2

1.0
20.7

4.7
403

5,0
26.0

8.0

9,0
xoo.o

320.0

66.0

24,1
6.2

1.6
xo6j

19,3

191,8

31,3

56.4

40.0

62.0

246.8

tTotal

127.0

135,6

129,7

X47.9

X77,6

232,0

349,0

1.171,8

' Extraordinary
Capita] Expenditures
Railway Subsidies .
War Loana~ Expenses

and Discounts . .
War

• • • •

4X
5

5
61

3
166

15
306

10
344

• • • •

— 7
446

18
347

245
8

44
1,670

Total

1x2

209

349

398

464

435

1.967

tTotal Bzpenditttre . .

186

Stt

840

498

676

6S7

784

S,ltt

Deduct 19x4. . . .

• • • •

x86

186

x86

186

x86

x,xi6

Cost of the War . . .

• • • •

€1

184

SIS

sso

611

6SS

S,0B7

Net Borrowings . .
% Cost of War . .

• • • •

X15
185.48

X67
108.44

266
83.26

316

81.03

384
73. '5

304
63.88

1.642
81 .00

flncludes sundry small items. "^From this point 000^000 omitted.

34]

BANKERS TRUST COMPANY

DOMINION RECEIPTS

(In millions of dollan)

Year ended March 3z

Z9Z4

Z9XS

Z9z6

19x7

X918

19x9

Z9ao

Total

X9X5'20

Rbvbnub
Customs . . .
Excise . . .
War-Tax . .
Post Office .
Railways, etc.
Dominion Land
Interest on Inv

ments . .
Other Items

• 1

> •

Is*. .
est-

> •

zos
az

• • • •

a
6

76
az

• • • •

13
za

3
S

99
aa

4
X9
Z8

3
5

134

x6
ax

3
6

144
a?
as
ax

4
7

147
30
56
aa
38
4

7
9

169
43
8a

X7
8

769
X67
X83
zao
z6z
aa

37
40

Rovenuo . . .
Fer cent. Total •
Borrowed — ^Net
Per cent. Total •

16S

S7.63

12.37

188

53.63
Hi

46.37

50.74

167

49.26

S81

46.59
S66

53.41

S69

45.04
816

54.96

818

44.91
884

55.09

890

49.74
894

50.26

1,499

47.72

l.««
52.28

Total Receipts

186

148

889

498

§71

697

784

ZMl

Present Methods of Taxation

The necessity for raising more revenue and checking
luxurious and extravagant expenditures led to important
changes in taxation being introduced in 1920 upon recommen-
dation of the minister of finance.

The principal methods of taxation now employed for
raising revenue, outside the tariff, are the '^ business profits
war tax" which is imposed on all trades and businesses of any
description carried on, or partly carried on, in Canada, and
the "income war tax" which is collected from ev^ry person
residing or doing business in Canada and from corporations
and stock companies on their income for the preceding year.
Non-residents carrying on business in Canada are required

THE DOMINION OF CANADA [ 35

to pay income tax on the net profit arising from such busi-
nesses. Then there is the "sales tax" of one per cent, on the
duty paid value of importations by manufacturers, on sales
and deliveries by manufacturers, wholesalers or jobbers. The
tax increases to two per cent, on sales by manufacturers to re-
tailers or consumers, or on importations by retailers or con-
sumers. The "luxury tax" is paid by the purchaser to the
vendor upon certain articles of wearing apparel, cigarettes,
cigars, sporting goods, automobiles, and so forth, at the time
of sale. Another source of revenue !is the "bill stamp tax" of
two cents on checks, bank drafts, money orders and short
term notes, and two cents for each ^loo or fraction thereof on
long term notes, demand notes, overdrafts, advances on loan
agreements and on transfer of stocks or shares.

Estimated Revenue
Current Fiscal Year

The latest estimates indicate than Canada will have a rev-
enue during the fiscal year ending March 31, 1921, which will
establish a record in federal receipts. From present estimates,
and presuming that the new luxury and sales taxes show
returns during the remainder of the year commensurate with
those of the initial month of their operation, the total reve-
nues for the year will approximate ^600 million, or an amount
over 50 per cent, in excess of last year's record. This sum
will be sufficient to meet all interest and pension charges, all
expenditure under consolidated fund accounts and something
on the principal of the dominion debt.

Some idea of the increase in taxation may be gathered
from the fact that the revenues for the five years prior to
the war averaged only ^137,450,000 a year, with a maximum
of ji68,689,oooin 1912-1913.

36 ] BANKERS TRUST COMPANY

Puhlk Debt '

The public debt of Canada for the same period covered by
the foregoing statements of receipts and expenditures is
set forth in the table on page 38. It is customary for the do-
minion officials and newspapers, when mentioning the public
debt to refer to the net debt, that is, the debt less certain
assets considered a fair dFset thereto. The gross debt is of
course the liability which must be met. The offsetting assets
are more or less liquid. In regard thereto the finance minister
made the following remarks in his budget speech delivered
on May 18, 1920:

The ledger as of March 31, 1920, shows the country's gross debt to
be $3,014,483,774.12. [Since readjusted at $3,043,600,000). The capital
accounts referred to are not deducted from this debt but the ledger,
treating investments as active, deducts them from the gross debt and
discloses a net debt of $1,935,946,312.85. Beyond all question it is a
matter of importance that the exact position of the country's debt
should be clear. While the books are correctly kept and the entries
properly made, in my opinion some of the investments cannot be char-
acterized as active investments. They are shown as follows:

Investments, Etc., Included in As of March 31,

Calculating Net Debt 1920

Sinking; Funds $211385,930.72

Canadian Northern Railway Co 140,223,373.89

Grand Trunk Pacific Railway Co 95»345f469.i9

Grand Trunk Railway Co if 148,533.33

Loans to Banks 101,065,725.00

Advances to Trust and Loan Companies 3,850,000.00

Loans to Provinces (Housing) 11,740,000.00

Loans to Provinces (Farmers) 3,500,000.00

Imperial Government 171,710,168.19

Other Governments 34f336,ii7.75

Miscellaneous Investments 39,314,000.45

Miscellaneous and Banking Accounts 175,039,622.61

Cash 173,984,342.34

Specie Reserve 103,597,849.90

Province Accounts 2,296,327.90

$1,078,537,461.27

THE IKMflNION OF CANADA [ 37

Gross Debt . . $5,014,483,774.12
Less above . . 1,078,537,461.27

Net Debt . . . $i,935i946>3i2.85

It is obvious that the advances to the Canadian Northern, Grand
Trunk Pacific, and Grand Trunk Railway Companies cannot be treated
as active assets. They are not at the moment realizable; further, no
nterest is being paid, and in some cases the principal as well as interest
s overdue. As is well known, Canada is now the owner of the Canadian
Northern, receiver for the Grand Trunk Pacific, and steps have been
taken for the acquisition of the Grand Trunk. While the railways have
potential value, at the present time the fact is that the country itself
owns the Canadian Northern and is responsible for the operation of the
Grand Trunk Pacific, with resultant heavy cost to the taxpayer.

Assets which are not readily convertible, as the specie reserve is
convertible, or are not interest producing, are not such assets as oaght to
be deducted from the gross debt. They are inactive; they are items of
such a character as might well be placed in a suspense account. At any
rate, whatever may be their future value, however great it may be, they
are not assets of such a character as to directly reduce the gross debt
any more than the other capital accounts of the country ought to be
deducted from it.

I would therefore reduce the deductions made from the gross debt
by the railway items already referred to, and on the same grounds after
making a study of the amounts making up the $39 million odd charge to
miscellaneous investments, I would reduce that item by $11,015,951.20,
and the item, miscellaneous and banking accounts, of $175 million odd
by the sum of $56,592,463.12. While the charge against the imperial
government is correctly stated as of the above date, beyond all ques-
tion there are further contra accounts of the imperial government which
will approximately reduce this credit item by some $33,033,333.34. The
result of providing for this contra account and of treating the inactive
items as items that ought to go in suspense or capital account is to reduce
the investments included in calculating the net debt by $337,359,124.07
[thus making net deductible assets, $741,178,337] and to increase the
net debt as shown from $1,935,946,312.85 to $2,273,305^436.92.

38]

BANKERS TRUST COMPANY

DOMINION DEBT

Comparative Statement, 1914-1920
(00.000 omitted)

Years Ending
March 31

1914

1915

1916

1917

19x8

1919

I930

LIABILITIES

FumdbdDbbt—

Payable in Canada.

100,3

340,3

881,5

T.475.9

3.063.5

Payable in London.

302.8

338,4

362,7

362.7

362,7

336.0

Payable in N.Y. .

75.9

150.9

Temporary Loans .

8.3

81. 1

183.0

300,3

183,3

362,9

73.9

Bank Circulation

Redemption Fund

5.5

5.6

5.4

5.7

5.8

5.9

Dominion Notes . .

II7.8

157.1

178,0

183.3

250.8

289.2

311.9

Savings Banks (P.O.

and Dom. Govt.) .

55.6

^4.0

53.5

56.2

53.4

53,1

42.0

Trust Funds. . . .

10,3

lOA

10,4

10,6

II.3

II.9

13.5

Province Accounts .

II.9

11.9

II.9

11.9

II.9

11,9

Miscellaneous and

Banking Accounts

31.4

41.3

31.8

35.1

26,7

27.2

33.9

GrossDebt . . .

644,8

700,6

987,0

1,888,0

1,868,8

8,676,6

t8,048,6

Increase over pre-

vious year. . . .

156,2

237.5

445,0

481,3

813,3

367,0

ASSETS

Investments —

Sinking Funds . .

9,1

10,8

13,6

14.0

17.2

18.7

22.3

Other Investments

171.3

190,3

219.2

224,9

233.0

310.S

40s. I

Province Accounts .

3.3

2,3

Miscellaneous and

Banking Accounts

25.7

47.7

87.7

261,6

418.9

770,6

649.7

Total Assets . .

208.4

251. 1

321,8

S02.8

671.4

1. 103. 1

1.079.4

Total Nbt Debt .

335.9

449.4

615.2

879,2

l,T9I,9

1,574.5

1,964.2

Increase over pre-

vious year. . . .

113,5

165,8

264,0

^312,7

382,6

389,7

National WeaKh . .

11.116,6

11,000,0

18.000.0

16,000,0

Gross Debt, Per

Cent Wealth . .

404

5-83

7-21

0.21

12 42

16.73

19 00

InterMt Charge . .

M.9

16,7

«1.4

86,8

47,8

77,4

186t

National Income . .

1.600,0

1.800,0

8,000.0

8.800,0

8,600.0

8,600,0

Charge Per Cent. In-

come

.86

1,04

1,18

l'70

1*01

3*09

5-40

On account of omitted figures totals may exceed sum of items. fEstimated.

tThe gross debt for 1920 given in table is slightly larger than the figure used in
the budget speech. Thii is probably because the latter figure was changed by later
adjustments in the aoooonta.

Chapter V
The Currency

THE Canadian monetary system is based on the British
gold standard, with a subsidiary silver and bronze coinage.
The coinage is now struck at the royal mint, Ottawa. The
gold coins of unlimited legal tender prescribed by the Cur-
rency Act are:

The British Sovereign — ^legal tender for $4.86% of Canadian

currency;
The Canadian and the U. S. A^ ^.00, $10.00 and $20.00

gold pieces — interchangeable; and
A special $2.50 Canadian gold piece which, however, has not

yet been minted.

But little gold circulates, the whole stock being chiefly
held by the government and the banks for reserve purposes.
Superimposed upon the gold foundation is a mixed dominion
note and bank note currency the principal features of which
are as stated hereunder.

Dominion Notes

The dominion government is authorized to issue cur-
rency notes known as "Dominion Notes" up to the amount
pf $$o million' against a reserve in gold equal to one-quarter
of that amount, and to any amount beyond this limit of
$50 million against an equal amount of gold. Dominion notes
are redeemable in gold and are a legal tender in every part of
Canada except at the offices at which they are redeemable;
hence they are practically gold certificates. The banks are
required to hold not less than 40 per cent, of their Canadian
cash reserves in dominion notes. Under the emer^erur<j

40 ] BANKERS TRUST COMPANY

legislation begotten of war conditions the dominion govern-
ment isy however, duly empowered to authorize, in its discre-
tion, for a period expiring at the end of two years after the
conclusion of peace, the making of advances to the chartered
banks by the issue of dominion notes upon the pledge of ap-
proved securities and to suspend for the same period the
redempdon in gold of dominion notes.

The following table sets out the status of the dominion
notes on June 30, 1920:

DOMINION NOTES
June 30, 1920

Notes outstanding $292,016,000

Reserves

Gold $95,538,000

Covered by approved securities
under Finance Act, 1914 . . 138,036,000 233,574,000

Uncovered $58,442,000

Gold per cent, notes outstanding 32 . 71

Bank Notes

The circulating medium principally in use, apart from do-
minion notes, is bank notes. These are issued in denomina-
tions of ^5.00 and multiples. The chartered banks are author-
ized to issue such notes up to the amount of their unimpaired
paid up capital. On such issues there is a tax of one per cent,
per annum. During the period of the movement of the crops
(Sept. I to Feb. 28-29) ^^^ banks may also issue "excess"
circulation to the amount of 15 per cent, of their combined
unimpaired paid up capital and "rest "or "reserve" funds,
i.e., their surplus funds. They pay interest on the "excess"
at the rate of 5 per cent, per annum. They ^ay further in-
crease their circulation by depositing an equivalent amount

THE DOMINION OF CANADA [ 4I

of current gold and/or of dominion notes in a central gold
reserve controlled by trustees appointed for the purpose.
The notes issued against the deposits in the central gold
reserve are subject neither to tax nor to interest. There are
penalties for issuing notes beyond the authorized limits.

Ordinarily the notes are not legal tender but they are pay-
able on demand and the banks are required to insure that
they circulate at par throughout the dominion. This is ac-
complished through the operation of the provision of the
banking law which requires a bank when its notes are pre-
sented by any other bank to redeem them in legal tender,
that is in dominion notes or gold. By this provision an
over issue of bank notes is prevented. This daily redemp-
tion of bank notes is the key of the whole banking position.

However, under the emergency legislation already referred
to in describing the dominion notes, the dominion govern-
ment was also empowered, in its discretion, for a period
expiring at the end of two years after the conclusion of peace
(July 31, 1919, for the United Kingdom, but no date has
as yet been named by the Canadian government), to authorize
the several chartered banks to make payments in satisfaction
of their liabiliti'es in their respective bank notes, instead of
in gold or dominion notes. Thus the duly authorized issues of
bank notes were practically given the quality of legal tender
for the period. The banks also were authorized until August
31, 1920, to issue during the entire year "excess" circulation
to the amount of 15 per cent, of their unimpaired paid up
capital and "rest" or "reserve" funds upon the terms that
interest at the rate of five per cent, per annum be paid upon
the "excess" so issued. As yet no steps have been taken to
extend this period -as the usual annual period for emergency
circulation became effective on August 31, 1920, for a period

42 ] BANKERS TRUST COMPANY

of six months. There is, therefore, ample time to consider
the need of further action in this direction.

Bank notes are secured by a first lien on the assets of the
issuing banks and by the ''bank circulation redemption fund."
All banks contribute to the latter fund on the basis of five per
cent, of their average circulation, on which basis the fund
must be maintained after providing for outgoings. The pur-
pose of the fund is to secure the payment in full of notes of
any bank that may become insolvent. When a bank suspends
payment, its notes in circulation bear interest at the rate of
five per cent, per annum from the date of suspension to such
date as may be fixed for the payment thereof. In the net
result the notes of each bank are practically guaranteed by the
banks at large, while the interest bearing provision prevents
the notes of an insolvent bank from falling to a discount be-
tween the date of suspension and the date when the liquidator
gives notice that he is prepared to pay them.

Total Circulation

On June 30, 1920, there were outstanding notes as follows:

Dominion Notes $292,010,000

Chartered Bank Notes 227,775,000

Total $519,791,000

Deduct Dominion Notes held in Central Gold
Reserve about 90,000,000

Net Note Circulation $429,791,000

or about $48 per capita.

The per capita circulation of the United States is now
about ^54, while that of the United Kingdom and Ireland is
about ^50. These figures do not include subsidiary coins
which for Canada amount to ^3.26 per capita; the United
Kingdom, about J7.39; and the United States* ^3.16.

Chapter VI
The Banks and Banking System

THE regulation of banking, the incorporation of banks
and the issue of paper money fall exclusively within
the legislative authority of the dominion or federal parlia-
ment. There are no '^provincial" banks corresponding to
American ''state'' banks. Banking generally is regulated by
the bank act which while usually revised at the end of ten
year periods is none the less subject to amendment by
parliament at any time. The last general revision took place
in 1913. The decennial revision of the bank act has the
effect of continuing in force for the ensuing period of ten
years the charters or acts of incorporation of the several
banks to which the act relates, subject of course to the
operation of forfeiture and other terminating provisions.

The Chartered Banks

The banks established under the bank act are commonly
called "chartered banks" and are authorized to open branches
and agencies; to deal in coin and bullion; to deal in, to dis-
count, and to lend money on the security of bills of exchange
and other negotiable securities and the stocks, bonds, deben-
tures and obligations of municipal and other corporations,
and dominion, provincial and other public securities; and
to carry on generally the business of banking — but, among
other things, the direct lending of money upon the security
of shares in the capital stock of any chartered bank and
upon the security of real estate is prohibited. The design
of the two important prohibitions stated is to ^n^ ^fc-^Jix^

44] BANKERS TRUST COMPANY

to the ''paid up capital" of the chartered banks as a whole,
and to keep their resources liquid by preventing the locking
up thereof in immovable property.

How the Banking System Functions

Canada has a very flexible banking system. The banks
have perfect control of the credit situation by reason of the
fact that there are but eighteen chartered banks in the
dominion, which banks have over four thousand branches
located in all portions of the dominion and Newfoundland;
also in Great Britain and in foreign countries as more fully
noted in a later paragraph. Thus the banking and credit sys-
tem is under the supervision of a few large and powerful
and well managed institutions headed by trained bankers.
Through the branch system they are able to keep closely in
touch with every part of the country and to obtain accurate
information regarding the status of any industry, both local
and general, and of any borrower. As has been well said:
"The credit facilities of the country, like the bank note issues,
follow where the need exists and the situation is always
under control. It is the case of a few men working together
against many individuals working alone."

The Credit System

The Canadian banks are able to extend a line of credit to
borrowers much larger than would be considered safe under
any other system of banking. The secret lies in the fact that
a borrower cannot seek credit indiscriminately. By custom
he must deal with one bank, or, at most, in exceptional cases,
with two or three, and then only by common consent; thus
the lending bank becomes very closely in touch with the
business of the borrower.

THE DOMINION OF CANADA

1 45

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iJa U g C« Q cB

Og-^3

e§s

2: <

fc^ « 5» O

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ec ^ 10 (O o«« ^ (O o Ok o««o t^o (O e« f<

_12.

rooo
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rooo «0 ^tO fO «*• O (O If
(<oo e« ^e« o M M o O

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o>o

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t«> 10 ^ M I0>0 (*> M M («) (O M

row ^w

• • * •

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row fOW

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M^ M ^O tow»o to v>e«« w»0

O M f< M

• • • •

M o O O

o»^ lo^foaoo ^o»^o r*ujOk

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Okt*r*M

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M ^ M

Ok 00
t«.p

00 00 O roe* Ok 00 00 ^^>0 00 A<^m
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ined lo M 80 r^fO«»n^e*«o cRifwo

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46 ] BANKERS TRUST COMPANY

In the case of wholesale purchasers or shippers of, or deal-
ers in, products of agriculture, the forest, quarry and mine;
or, the sea, lakes and rivers; or, wholesale purchasers of, or
dealers in, live stock or dead stock or the products thereof;
or wholesale manufacturers of any goods and merchandise,
a bank may lend upon the security of the corresponding raw
materials and products and have the same rights as it would
acquire under a warehouse receipt subject, however, to the
paramount lien of wage earners and salaried employees, for
three months remuneration. A bank may also lend farmers
money for the purchase of seed grains secured upon the
resultant crops; and money upon the security of threshed
grain grown upon the farm and also upon the security of
live stock.

Under the operations of the Canadian law, if its technicali-
ties are carefully complied with, the bank becomes practically
the owner of the duly pledged goods of such borrowing con-
cerns. The borrower retains the right to buy and sell, but
in case of necessity the bank may take immediate possession
of the pledged stock.

A large part of the commercial paper taken by the banks
from borrowers is therefore secured by what is practically
title to the goods in warehouses, factories and other places.
Thus merchandise is actually the first security to the loan
while the general credit of the borrower supplements such
security.

Commercial paper transactions such as are common in
the United States are but little used in Canada and, there-
fore, there is no field for the bill broker. Credit granted by
the trader takes the form of book accounts or promissory
notes. Drafts running from sight to 120 days are drawn
by the seller upon the buyer under a wide and well established

THE DOMINION OF CANADA

[47

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48 ] BANKERS TRUST COMPANY

practice. The drafts are then either discounted at the bank
of the drawer or are forwarded through a branch for collec-
tion and after acceptance are held until maturity. This is
known as two-name paper.

Flexibility of Credit System

As we have already seen, the principal circulating medium
in use is bank notes. The combination of the branch bank
system with freedom of action, within the limits already ex-
plained, in regard to note issues gives to Canada a remark-
ably flexible banking machinery. A bank receiving deposits
at Halifax, Montreal and Toronto may lend them the follow-
ing day through its branches and by the issues of its own
notes at- Far Western points, the branches redeeming the
notes, when presented, by drafts upon the head oiEces. Thus
it is possible to keep the rate of interest in the interior arid
in Far Western points within one-half to one per cent, of
rates prevailing in the large cities of the East on the same
kind of credits.

British and Foreign Branches

In addition to their branches in the dominion, the chartered
banks have branches or agencies in the United Kingdom,
United States, France, Spain, Italy, West Indies, Cuba, Mex-
ico, Central and South America, and during the past year
the first financial bridge to the Orient was built. Through
the medium of these branches the banks are therefore in a
position to offer their clients excellent credit facilities in the
United Kingdom and in foreign countries.

During the past eighteen months a new era in the foreign
policy of Canadian banks has developed. At no time have
so many branches been established or so many new interna-

THE DOMINION OF CANADA

CHARTERED BANKS

COMPARATIVE STATEMENT 1914-1930

In Dollars: 00,000 omitted

1 49

March 31

1514"

19,5

,B16

-9. J

1018

1019

["T55S-

'l2^?iSiS"° :

3^:J

6i.:

66,4

IJT4

78.1

.r,i

iS^ll

Total Cuh , . . .
Deposits TO Secure

Central Gold Ra. . .

141.9

6.7

6,9
35,3

S.8

MJ.8

364,1

Total

Due nou Banks

4.1

11, a
36.9

8.9

sa.4
s.*

to.3

6.S

88.5

44.6

139,8

.li

JR,5

LOAN5

Call and Short

Oulaide.do '.'.'.'.

69,1

,T.i

U0,4

163.4

74.a

ISl.J

313,4

Canada

Oulfflde.do . . . ,

S^3,S

"3,6

338.1
B43,l

83,6

SB6.9

34T.J

333,4

876,8

8>0.8

8>I,B

9J6,7

9B9.J

1,241.3

1,505.8

■,s

41.1

■H

>9!g

so:!

4>:o

63:1

^^™™iu.dPmv. .
Railway

6v,6

SS.a

:::

3J,6

S6.S

48.6
S4.3

76,4

Total InvestmtnU .
Other Assets , . . .

Real EHate ..'.'.'.
Real Estate Mtgs. , .
Bank Pr™i»e», . . ,
Sundi; AsKtB . . .

A3'.i

3.<

49%

4.6

lie

3,5

3:3

Total Other A»wu

Customers LiAau.iTY

a/c Acceptancei . .

8.4

"'■'

66.7

65.0

66,0
10,6

68.4

"■'

Grand Total Aswta

.,S33.4

..,34.4

..693,0

.mij.

i,nfa»

^ lVmA -!^1-iA

50 ] BANKERS TRUST COMPANY

tlonal alliances been formed. With certain notable excep-
tions Canadian bankers in the past have looked askance upon
the foreign field, but now not only have they declared that
Canadian exporters should have every facility afforded them
to secure foreign markets, but in many instances the bankers
have been the first to enter the new field and have opened the
way to trade expansion. In some cases the banks have sent
experts to practically every European country to study and
report on trade openings; also experts have visited Asiatic and
Pacific Island countries. The experience of Canadian bank-
ers has developed the fact that instead of foreign branches
eating up the bank's capital and drawing funds away from
domestic use, on the contrary, such branches have taken in as
deposits more than they have given out as commercial loans.
This is shown by the fact that loans other than call loans
made out^de of Canada on March 31, 19^0, amounted to
about $183,600,000, while deposits from the general public
outside of Canada amounted to $318,200,000.

It has been the practice for many years for the Canadian
banks, as a secondary reserve and for the purpose of facili-
tating the heavy trade interchanged between Canada and the
United States, to retain large balances in New York and to
make heavy loans there in the "call money" market and in
the "acceptance market." Such balances and loans obviously
do not tie up capital but, on the contrary, increase the liquid-
ity of the banks' assets.

Organization

The organization of the chartered banks of Canada is al-
most military in its completeness. By preference, the ranks
of the official staff, practically without exception, are filled
from thp clerical sta£F which has been trained within the

THE DOMINION OF CANADA

[SI

CHARTERED BANKS
COMPARATIVE STATEMENT 1914-1920
LIABILITIES In Dollars: 00,000 omitted

March 31

1914

X9X5

X916

X9X7

19x8

X919

1920

Capital— Paid Up . . .

Rest

Surplus

ixs,x

XX2,7

X9,5

XI3,9

1x3,3

X7,i

XX3,8

xx3,o

X7,2

XX 1,6
XX3.4

32,0

1X1,7

1x4,1

23,8

xxi,7

1x7,4
35,0

XX9.3

X24,9

27,5

Total — Capital, etc.

247,3

244.2

243,0

347,0

249,6

254,x

27X»7

Notes

Less, Notes of Other
Bankers

96,8
12,9

96.8
10,8

XI4,8

13,8

148.3

X7,5

X9X,0
25,9

214,6
29,6

225.8
37,4

Notes in Circulation .

83,9

86.0

103,0

X30,8

165,1

. 185,0

X88.4

Government Deposits
Dominion Govt. — Net
Provincial Govts. . .

8,7
3X,8

X4,i
34,0

25,5

22,3

45.9
33,2

89,6

19,2

338,3

3Z,6

363.3
X7.8

Total

40,5

38,x

47.8

68.x

xo8,8

249,8

280.1

Other Deposits

Demand \ t i-. j
NoUce /I° Canada.

345.6
646,1

339,5
676.9

389,2
738,2

448,2
888,8

56x,o
.921,0

566,8

1.037,9

657,4
x,X97.7

Outside Canada . . .

99X,7
XX4,5

1,016,4
97,7

x,X37,4

X30,7

1.337.0
X70,3

1,483,0
196,3

1,604,7

310,1

x,855,x
3x8.3

Total Genera] Public

Z,X06,2

x,iX4,i

x,348,x

1.507,3

1,678,3

1,814,8

2,173,4

Due to Banks

Canadian

United Kingdom . .
Elsewhere

5,7
11,6

10,7

9,6
xo,7

13,0

xo,4

4,9
X7,x

6.9

2.3

24,5

10,1

4,6

30,5

11,4

4,5

39,3

9,7

8.0

38.8

Total

38,0

33,3

32,4

33.7

45,2

45,1

56.5

Bills Payable

Acceptances

Other Liabilities ....
Total due Public

15,2

8.4

3,9

1,386,1

8.6
8.9

3,3
1,390,3

6,7

9,2

3,8
1.450,0

7.9

10,9

2,7

1.761,4

2,X
30,6

6,4

2,036,4

1,9

28,9

2,9

2,328.4

7,5

42,9

2,9

2,75X,7

Grand Total Liabilities .

x,533,4

X. 534,4

i 1.693.0

I a»00%,4

V aai^»^

^ i,<;«»i;

^ -j^fia-*,.

52 ] BANKERS TRUST COMPANY

bank's own organization. Thus the officials are steeped with
the bank's policies and traditions. They look upon their
duties as professional and conduct the affairs of the bank upon
lines found to be wise and safe over a long series of years.

The general manager, who is at the head of the organiza-
tion, exercises almost autocratic powers. It is his duty to
define the policy of the bank toward customers and to direct
the activities of the working forces. While he reports to the
president and the directors, it is probably usual that in defin-
ing the policy of the bank they are guided by his judgment
and ordinarily would hesitate to urge any course of action
of which he would not approve.

Next in authority to the general manager is the assistant
general manager. These two officials are the chief executive
officers of the bank. The large banks divide the country into
districts. Over each district there is a superintendent who
exercises over the branches in that district an important
supervisory power. Then there are traveling inspectors whose
duty it is to carefully check up the business of the branches,
especially in regard to credits granted to clients. Their duties
are quite independent of those of the auditors who regularly
examine the accounts.

Over each branch there is a local manager, or, in the case
of the larger branches, a group of two or three managers.
In New York and other cities of the United States where
branches in the fullest sense of the word are not permitted,
the managers are known as agents and the branches as
agencies.

The duties of the manager and his official and clerical
staff and the methods by which the business of the branches
are to be conducted are carefully outlined in printed instruc-
tions assembled in book form. The officials and clerks are

THE DOMINION OF CANADA [ 53

expected to keep themselves well informed in regard to these
instructions, which are in considerable detail.

The local managers are expected to become one with the
people of the districts served by their branches. They are
encouraged to take part in local activities of a public nature^
except party political controversies in which they must not
participate. In the farming districts they are told to drive out
among the farmers, become well acquainted with them and
become thoroughly informed regarding their activities.

In addition to daily, weekly and monthly reports in re-
gard to the business of the branch, the manager each month
must send to the head office a carefully prepared report in
regard to local business conditions, the state of the crops, and
the status of other industrial activities domiciled in his dis-
trict.

The local manager has considerable latitude as to loans.
He can appeal to the district superintendent for advice and
instructions and in turn the district superintendent can draw
upon the authority and wisdom of the head office. Thus the
client of the little branch in a remote section of the country
may have at his disposal the ripe experience of the older
bankers at district headquarters or at the home office. The
Canadian system of branch banking is thus peculiarly adapted
to the needs of a young and developing country. Branches
can be established in many places where a bank ordinarily
would not be profitable, or would be so small as not to be
of value in upholding the business of the neighborhood.

Audits — No Government Inspection

The Canadian banking law makes no provision for in-
spection of the banks by government bank examiners. How-
ever, the law requires that the affairs of each chartered bank

54 ] BANKERS TRUST COMPANY

shall be examined by qualified auditors to be selected by the
shareholders from a list published in The Canada Gazette and
approved by the minister of finance. If the shareholders do
not exercise this right, an auditor may be appointed by the
minister of finance on the application of any shareholder.
The auditors' report must be attached to the statement sub-
mitted by the directors to the shareholders and must be read
in the annual general meeting. A copy of the annual state-
ment must also be filed with the minister of finance with
whom also a monthly return must be filed and regularly pub-
lished. The minister may also call for special returns from
any bank whenever, in his judgment, they are necessary to
afford a full and complete knowledge of its condition.

Through the medium of the Canadian Bankers Associa-
tion, incorporated by special act of the dominion parliament,
the banks have procured legal powers of supervision for the
making of circulating notes and the delivery thereof to the
banks, and the disposition made by the banks of such notes
and penalties for the non-observance of the regulations appli-
cable thereto. Thus the association has the legal right to
inspect each bank so far as its note circulation is concerned
but in no other particular, and the approved by-laws make
provision for the regular exercise of the right.

Canada has not been entirely free from bank failures, but
its system as now developed would appear to afford a maxi-
mum of credit facilities per unit of capital employed with a
minimum of risk to the banks and their clients.

Savings Banks and Funds

There are only two incorporated savings banks in the
dominion. These are La Caisse d'Economie^de Notre. Dame
de Quebec, head office Quebec, established in 1848 and The

THE DOMINION OF CANADA [ 55

Montreal City & District Savings Bank, head office Mon-
treal, established in 1846. These old established banks now
function under the terms of The Quebec Savings Banks Act
of 1913. This act regulates carefully the manner in which
their business shall be conducted and defines the investments
in which their deposits may be placed. Provision is made for
official audits and for monthly returns in a specific form to be
published in The Canada Gasetu, the official o^an of the
dominion government. Following, in somewhat condensed
form, is a copy of a recent statement:
STATEMENT
INCORPORATED SAVINGS BANKS
May 31, 1930
Liabilities
nitted)

Capital
Slock

Capital
Up

Surplui

Do-
minion

Demand

Notice
Day

bilidn

Lia-
bilitis

Ca<SK d'Ecooomie de
Notre DBmedi Que
btc

=.0

..5

-.7

0.5

loA

0,4
0,8

46,B

Total . . .

3,0

J,S

a.fi

0,7

53-3

1.3

60.3

ced capital li nbject to calL

Hand

Municipal
Bond! or
SecoritlM

Bond.

Loaniand

PremiaM

Security

Total

AMCtl

Clwand DiRritt

C^''lrEi^nJe'd;
No^Dame de

7^
1.6

...

1S.6
4.1

.„

46.!

Total ....

M,»

W,7

S.S

I3JI

6«.S

56 ] BANKERS TRUST COMPANY

The chartered banks have savings departments, on the
deposits in which interest is allowed, but they are not required
to make any special use of these particular funds. Such de-
posits are not separately reported, but no doubt they form an
important part, but by no means the larger part, of the "de-
posits by the public payable after notice or on a fixed day'*
which on June 30, 1920, totaled $1,243 million.

The dominion government maintains a double system of
savings banks, or, expressed perhaps more correctly, savings
depositaries. One set, styled "post office savings banks," is
managed by the post office department, every post office re-
ceiving deposits. The other set, styled "government savings
banks," is managed by the finance department. The post
office department also sells annuities and old age pensions.
The money received through these savings banks is regarded
as a loan from the people to the government. The govern-
ment is required to carry a gold reserve of 10 per cent, against
the savings deposits, but no assets are set aside for their
security.

Most of the deposits in the government banks come from
the poorest and most ignorant classes, people who in all coun-
tries are suspicious of banks. Some of the Canadian cities
maintain municipal savings banks, but they are of relatively
small importance.

Large sums are kept on deposit with the loan and
mortgage companies, which are in the nature of savings
deposits.

Following is a comparative statement for the past six
years of the several classes of definitely segregated savings
deposits :

THE DOMINION OF CANADA

[57

SAVINGS DEPOSITS

(00,000 omitted)

March 31

1914

1915

1916

1917

1918

1919

1920

^Incorporated Banks
Dominion Govern-
ment Savings

Banks

Post Office Savings
Banks

37,4

15,)
41,6

39,1

14,0
40,0

42,4

12,3

40,0

53,5

15,7
42,6

43,3

15,5
41,3

50,3

16,8
41,6

53,3

10,5
32,8

Total ....

94,5

93,1

94,7

111,8

100,1

■

108,7

96,6

* These figures, in part, are for December 31.

Trust Companies

In 1872 the Dominion of Canada and also the Province of
Ontario granted trust company charters, but the first trust
company formed in Canada was The Toronto General Trusts
Corporation, formed in 1882. The three other largest com-
panies date their business from 1899, so that the trust com-
pany idea in Canada may be said to be of comparatively re-
cent date.

A large number of companies have been organized in
Canada— principally, if not wholly under provincial laws—
for some specific purpose without any intention of transacting
general trust company business, but whose charters have
been taken out under the corporate name of trust company.
In British Columbia alone there were at one time approxi-
mately 160 companies operating under the name of trust
company, 95 per cent, of which were formed for specific
purposes and made no attempt to transact regular trust com-
pany business. In order to control the use of the \vords
"trust company" in a corporate name and in order to have
some supervision over the business of trust companies, sev^

58 ] BANKERS TRUST COMPANY

eral of the provinces have passed acts defining under what
circumstances a company may operate under the name of
trust company. In 1914 the dominion parliament passed
"The Trust Companies Act," revising the laws relating to
trust companies incorporated by or under authority of acts
of the parliament of Canada. The provisions of this act were
very complete and strictly limited the use of the word "trust"
in the corporate name of the companies taking out new
charters, but companies which had previously taken out do-
minion charters were still permitted to operate under the
name of "trust companies" and the dominion act did not
affect trust companies with provincial charters.

There are in Canada, however, in the neighborhood of
twenty-five companies that are doing business similar in gen-
eral character to the trust company business as known in the
United States — that is to say, which act as executor under
wills, as agents for executors, as admini^rators, as trustees to
execute trusts for marriage settlements and the like. They
also act as agents for their clients to invest moneys, collect
dividends, coupons and other income; to manage real estate,
collect rents and attend to repairs; to act as agents to buy or sell
real estate; also as trustees for corporations, for registering
and countersigning certificates of incorporation and as trus-
tees for the bond issues of corporations.

Very few of these companies and none of the larger ones
operate under the Dominion Trust Companies Act. The laws
dealing with the devolution of estates and successions are
passed by the legislatures of the various provinces and it is
necessary for trust companies dealing with such matters in
these various provinces to comply with the respective laws
thereof in all matters, including that of the eligibility of the
trust company itself.

THE DOMINION OF CANADA

[59

TRUST COMPANIES' STATISTICS

Arranged according to relative magnitude
In dollars (coo omitted)

Year Ended
December 31, 19 19

Royal Trust Co

Toronto General Trusts Co. .

National Trust Co

Montreal Trust Co

Eastern Trust Co

Trusts & Guarantee Co. . .

Standard Trust Co

Northern Trusts Co

Union Trust Co

Canada Trust Co

Bankers Trust Co

London & Western Trust Co.

Western Trust Co

Sterling Trusts

British Empire Trust Co. . .
Mercantile Trust Co. . . .

Prudential Trust Co

Imperial Trust

Crown Trust Co

Canada Guaranty Trust Co.

Capital Trust Co

Nova Scotia Trust Co. . . .

Brantford Trust Co

Premier Trust Co

Winnipeg Mercantile Trust
Co

Guar-

Capital

anteed

Estates

Account

Accounts

Trusts

5,739

2,467

226,033

3,883

9,477

87,763

3,301

5,975

79,665

2,252

1,530

56,343

1,456

161

21,654

2,722

5,363

14,047

1,627

2,524

12,045

2,161

1,370

11,072

1,596

5,279

6,719

1,686

4,860

4,234

312

517

10,933

725

• • • •

10,387

1,317

993

7,590

515

587

7,070

4,590

• • • •

2,515

829

451

5,635

994

1,574

2,277

273

1,365

3,080

777

• • • •

3.878

439

286

1,913

545

605

1,136

283

• • • •

1,0X0

330

• • • •

637

139

345

154

Total

234,239
101,123

88,941
60,125

23,271
22,132

16,196

14,603

13,594
10,780

11,762

11,1X2
9,900
8,172
7,105
6,915
4,845
4,718

4,655
2,638

2,286

1,293
967
517

239

Although in some cases authorized to take deposits, the
trust companies do not as a rule receive money on deposit

6o ] BANKERS TRUST COMPANY

subject to withdrawal by check, confining themselves more
or less strictly to the trusteeships in their various forms. The
fact that trust companies do not as a rule seek deposits u
probably largely accounted for by the fact that a number oj
the larger banks have trust companies associated with them,
For instance, The Royal Trust Company with assets under its
administration according to its last report of $234 million U
closely affiliated with the Bank of Montreal, while the Mon-
treal Trust Company is similarly affiliated with the Royal
Bank of Canada, and the Bankers Trust Company of Mon-
treal maintains similar relations with the Merchants Banls
of Canada. The larger Canadian trust companies have
branches in the chief cities of the dominion.

Mortgage and Loan Companies

A very real factor in the ypbuilding of Canada has beer
the funds which through the agency of mortgage and loar
companies have been made available for mortgage loan pur-
poses. Farmers throughout Canada desiring to take up land
have been able to borrow money at reasonable rates for secur-
ing such loans and those desirous of establishing homes in
town and city were also accommodated through the same
offices. It is said that* in the early days funds which wen
available for the uses of these companies were largely limited
to the amount which could be covered by the savings of the
people in Canada. Later on a market for such loans was
developed in Great Britain, particularly in Scotland. The
first mortgages secured upon farm property came to be looked
upon with great favor in that country and Canada was thus
assured of a constant and increasing source of supply of cap-
ital for farming and real estate development.

THE DOMINION OF CANADA [ 6l

At the end of 1910 fifteen of the larger loan companies
reporting to the Ontario government had outstanding on
mortgage loans in Canada just under $^^ million, of which
approximately $30 million represented money brought from
Scotland. At the end of 1914 the amount loaned by these
same companies had reached the sum of $91 million, of which
no less than $37 million, or 46 per cent., of all mortgage loans
held by these companies was money obtained In Great Brit-
ain. At the end of 1919, one year after the close of the war,
mortgage loans of these particular companies stood at about
$^l million, while the amount due British investors had de-
creased to just under $29 million. This large reduction in the
supply of loan funds from British investors was attributed,
first, to the embargo placed by the British government during
the war upon the export of money which prevented loan
companies from increasing the amount of their sterling de-
bentures; second, to the heavy increase in interest rates, which
discouraged new borrowing; and third, to the serious decline
in the exchange rate, with the resultant heavy loss in bringing
money from Great Britain to Canada. The lending com-
panies at the present time (1920) are experiencing difficulty
also in selling their debentures at home in competition with
high grade municipal and government securities which yield
a return of six to seven per cent.

On December 31, 1919, according to a statement published
in The financial Post of Toronto the chief loan and mortgage
companies owed on account of savings deposits $28,136,000.
They had outstanding $114,502,000 in debentures. Their
total liabilities to the public amounted to $147,702,000. The
capital and reserves and other liabilities to shareholders
amounted to $116,285,000. The total assets were $262,974,-

62 ] BANKERS TRUST COMPANY

OCX), which were invested chiefly as follows: $167,845,000 in
mortgages, $18,461,000 in other loans, $39,140,000 in securi-
ties, $8,540,000 in real estate and premises, while cash on
hand amounted to $15,370,000.

Rural Credit Societies

In 1916 the United States Congress passed the Federal
Farm Loan Act. In the following year the legislative as-
semblies of Ontario, Manitoba, Saskatchewan, Alberta and
British Columbia passed measures empowering the provincial
governments to provide money for loans to farmers. Previous
to this time somewhat similar legislation had been had in
Nova Scotia and Quebec. This legislation in Canada and
the United States for the benefit of dwellers in rural com-
munities seems to have had a common origin. The agitation
began in the United States some nine years ago and became
a national issue in 1912. In 1913 two commissions from the
United States visited various countries in Europe and studied
the conditions of rural credit prevailing there. One of these
commissions was qpmposed not only of delegates from differ-
ent states, but as well of representatives of various associa-
tions and there were also seven delegates representing the
four Canadian provinces of Nova Scotia, Ontario, Saskatche-
wan and Alberta. This commission made an investigation of
cooperative agricultural finance, production and distribution
of rural credits in various European countries. The legisla-
tion above referred to was the outcome of the studies origi-
nated by these commissions.

It is not our purpose to discuss in a detailed way the
legislation which has been had in Canada. Sufiice it to say
that in the seven provinces first mentioned above various

THE DOMINION OF CANADA [ 63

schemes of rural credit are now in operation. Their activities
are not in any case on a large scale and it appears to be too
soon to determine whether such aid for agriculture is likely
to be as satisfactory a method of obtaining rural credit as
that provided by the land and mortgage companies whose
operations have already been described and the facilities af-
forded to farmers by the chartered banks.

—T%~^pi^ """W-^

DOMINION OF CANADA

Scale of UUea

Chapter VII
Area and Population

CANADA, the greatest of the self-governing dominions of
Great Britain, has a land area of 3,603,910 square miles,
one-fourteenth of the land surface of the earth. This is about
thirty times the area of the British Isles and exceeds the area
not only of continental United States — 2,973,890 square miles
— but also that of our entire possessions including Alaska,
Hawaii, Porto Rico and the Virgin Islands, an aggregate of
3>S7S>S30 square miles.

The People

The population of Canada was officially estimated in 1919
to be 8,835,000, about the population of the United States
one hundred years ago. The population of Canada per
square mile, omitting from the calculation the 1,207,926
square miles of the as yet undeveloped and but little explored
Northwest Territories, is only 3.8b persons, just about one-
tenth of the population per square mile of continental United
States.

Tht Provinces

The oldest portion of Canada is the province of Quebec.
Originally settled by the French, it is still very largely in-
habited by people of French descent who use the French
language in their daily intercourse. This feature is so marked
that the official publications of the dominion government are
required to be printed both in French and in English. At the
time of the last census the percentage of Canadian born popu-
ladon, both French and English, was 64.49, British born
66)

THE DOMINION OF CANADA

[67

17.82 and foreign born 17.69. The foreign population is
largely in the prairie provinces and to a considerable extent
is composed of immigrants from the United States who have
been attracted to these provinces on account of their cheap
and productive lands. The increase in population in recent
years has been very largely due to immigration into these
provinces.

The table which follows gives the area of each province,
the population in 191 1 when the last federal census was taken,
and the latest estimates.

AREA AND POPULATION

Province

Alberta

British Columbia . .
Manitoba ......

New Brunswick . . .
Nova Scotia . . . .

Ontario

Prince Edward Island

Quebec

Saskatchewan . . . .

The Provinces . . .

Yukon

Northwest Territory .

The Dominion . .

Area
Sq. Miles

252,925
353,416
231,926

27,911
21,068

365,880

2,184

690,865

243,382

2,189,557

206,427
1,207,926

3,603,900

191 1

1919

Population

374,663

587,700

392,480

718,660

455,614

618,903

351,889

368,760

492,338

518,761

2,523,274

2,820,909

93,728

2,003.232

2,326,528

492,432

754,090

7,179,650

8,808,109

8,512

18,481

7,206,643

8,835,102

I9I9

Population
PerSq.Mile

2.28
2.03
2.66

1317

24-, 71

7.70
42.45
'9. 57

310

4.02

.04

.02

2.42

In considering the following statement of the economic
development of Canada^ the virility, resourcefulness and
political capacity of the empire-building material of which
this somewhat sparse population is composed will be force-
fully impressed upon the reader.

Chapter VIII

Natural Resources
Developed and in Reserve

/^^ANADA'S chief natural resources are in the divisions
^^ of agriculture^ forests, mining, and in her fisheries. It
is estimated that, excluding the Northwest Territories and
the Yukon, there are 302,200,000 acres of land in Canada
suitable for agriculture, and probably a very much greater
acreage which could be used for pasturage.

Agriculture

The "money crop" par excellence to which Canadian lands
are suited is wheat. Oats, hay, potatoes and barley are also
important crops. It has been demonstrated that sugar beets
can be grown advantageously, while the hardy fruits, such
as apples and certain varieties of grapes, also the small
fruits, such as strawberries, currants and gooseberries, can
be raised commercially.

For a long time to come, however, wheat and oats will be
the great commercial crops, although potatoes and barley
are being raised in progressively increasing amounts. Can-
ada stands fifth in the list of wheat-producing countries.
The average annual production of wheat in 1910-1914 was
196 million bushels. In 1915 the production reached the great
total of 393,542,000 bushels. The average annual production
of oats, 1910-1914, was 343 million bushels.
6SJ

THE DOMINION OF CANADA

[69

The quantities of each of the principal field products
harvested in each of the crop years 1915 to 1919, inclusive,
are given in the next table. The marked falling off in the
production of cereals may no doubt be attributed in part to
the fact that so many men were withdrawn from work on
the farms for service in the army. At the foot of the table
is given the value of the crops as officially estimated. It
will be seen that the farmers realized much more in dollars
from the smaller crops of the later years than from the larger
crops of the earlier years. However, the dollar realized had
a much smaller purchasing power. This fact is developed and
some of the reasons therefor suggested in the chapter on the
Credit Structure. The table follows.

FIELD PRODUCTS
In Millions

Calendar Year

Wheat (bus)

Oats (bus)

Barley (bus)

Rye (bus)

Flax (bus)

Total

Hay and Clover (tons)
Potatoes (bushels) .
Turnips (bushels) . .
Cattle (head) ....

Values .......

I9I5

1916

1917

1918

393

262

233

189

464

410

403

426

921

726

701

707

104

122

$825

$886

$1,144

$1,367

I9I9

196

411

II
6

683

131

105

$1,452

Following IS a comparative statement for the period of
the war of the production and exports of wheat*

7o]

BANKERS TRUST COMPANY

WHEAT CROP, 1915-1919, INCLUSIVE
(000,000 omitted)

♦Average

Exports

©Crop

Area

Yield
per

Total
Yield

Price
per

Total
Value

t
Year

Year

Acre

Bushel

Bushels

Value

Acres

bu.

1915

26.05

394

.91

357

'16

158

173

1916

17.10

263

1.31

344

'17

190

244

1917

15 -75

234

1.94

453

150

366

1918

11.00

189

2.02

382

;'9

1919

10.25

193

1.89

365

'20

185

Ending August 31. tFiscal year ending March 31. *At point of production.

Dairy Products

Statistics recently compiled by the Dominion Bureau of
Stjatistics for the year 191 8 in regard to the production of
dairy products show that in that year there were 3373 dairy
factories including 990 creameries, 1885 cheese factories, 476
combined butter and cheese factories and 22 condensed milk
factories. The total number of patrons contributing milk and
cream was 252,416 and the total amount of money paid to the
patrons of these factories was $83,637,000. The province of
Ontario contributed over $41 million of this amount and the
province of Quebec about $27 million. The output in butter
was 93,298,000 pounds valued at $41,859,000, and in cheese
174,878,000 pounds valued at $39,456,000. The capital in-
vested was just over $23 million. There were over 10,000
persons employed by these factories.

Minerals

The mineral deposits of Canada are varied in character
and especially varied in distribution. Comparatively little is
known about conditions in the great and almost wholly unex-

THE DOMINION OF CANADA

[71

plored Northwest Territories. There appears to be no ques-
tion, however, that in addition to gold, copper, nickel and
cobalt, which will probably be found in commercial quanti-
ties — and perhaps, of more importance than any of these —
there is here one of the largest areas of oil-bearing country
yet unexplored.

Passing from these possibilities to known developments
we find that gold, silver, copper, lead, zinc and gypsum are
produced in commercial quantities, while, with the exception
of a deposit in New Caledonia, Canada has a virtual monopoly
in the production of nickel, the known deposits of which, by
the way, are chiefly owned by an American company. Canada
also produces between 80 and 85 per cent, of the world's entire
output of asbestos.

The quantity output of the principal mineral products
is tabulated below. The last line gives the values of the total
mineral product as estimated by the Canadian Department
of Mines.

QUANTITIES PRINCIPAL MINERAL PRODUCTS AND
VALUE TOTAL MINERAL PRODUCTS

(000 omitted)

Calendar Years

1914

1915

1916

1917

1918

1919

Asbestos,

tons (2000 lbs) .

136

154

153

158

155

Cement, bbls . . .

7,172

5,681

5,369

4,768

3,591

4,991

Coal,

tons (2000 lbs.) .

13,637

13,267

14,483

14,046

14,979

13,586

Copper, lbs ...
Gold, ozs

75,735

100,785

117,150

109,227

"8,415

75.124

773

918

930

739

710

767

Lead, lbs. ....

36,337

46,316

41,497

32,576

43,846

43,895

Nickel, lbs. . . .

45,517

68,308

82,958

84.330

92,076

44,542

Silver, ozs

28,449

26,625

25,459

22,221

21,284

15,675

Total Value $

128,863

137,920

177,201

189,646

210,204

173.075

72 ] BANKERS TRUST COMPANY

Coal

It is estimated that in the dominion there are 11I9I69
square miles of lands underlaid by coal^ representing 14 per
cent, of the coal reserves of the world and 50 per cent, of those
of the British empire. The coal fields of Canada may con-
veniently be* divided into the bituminous coal fields of Nova
Scotia and New Brunswick, the lignites of Manitoba and
Saskatchewan, the sub-bituminous and anthracite fields of
Alberta and the eastern Rocky Mountain region, the semi-
anthracite and bituminous fields of Vancouver Island and
Queen Charlotte Island and the interior of British Colum-
bia, the lignites of the Yukon and the bituminous and lignite
fields of the Arctic and of the MacKenzie basin.

The coal areas and estimated quantities for the different
provinces are shown in the following table based upon figures
issued in 191 7 by the Division of Mineral Resources and Sta-
tistics of Canada. There should, of course, for practical con-
sideration, be a substantial reduction made in these quanti-
ties, due to waste in mining operations.

This unmined tonnage, aggregating 1,3 57,757 million tons,
compares with an estimated reserve of unmined coal in the
United States of about 16,000 million tons of anthracite and
3,538,000 million tons of semi-anthracite and bituminous,
sub-bituminous and lignite.

The Canadian coal deposits are located in the extreme
eastern and western provinces. The great Province of On-
tario in which live more than one-third of the entire population
of the dominion is without coal deposits; also Quebec where
dwell another 25 per cent, of the population. It is there-

THE DOMINION OF CANADA

[73

ESTIMATED COAL RESOURCES OF CANADA

Province

Area

Coal

Lands

Square

MUes

Semi-
Anthracite

Tons

Bituminous
Tons

Sub-
Bituminous

Tons

Lignite
Tons

Nova Scotia . .

sax
zax

48
X3.406
8x,878

6,04s
a,840

300
6,000

xo,69x, 000.000
x66,ooo.ooo

New Bninawick .

Ontario ....

37.coo.ooo

Manitoba . . .

X 76.000.000

6S.703.000.000

Alberta ....
British Columbia

845.900.000

aax7.9x8,ooo,ooo

tf77.9a3.ooo,oo<J

aa75.000.000

932.053.000,000

a9.095.000.000

ft5.7X 5.500,000
ftS. X M.000.000

Yukon

Northwest Terri-
tories ....

5.a8o.ooo.ooo

Arctic Islands

6,600,000,000

Total ....

XXX.X69

845.900.000

3x3.573.000.00J

932.053.000,000

xxx,a86,ooo,ooo

a Includes some anthracite coal.

b Includes some sub-bituminous coal.

fore necessary for Ontario to obtain practically all of her coal
and Quebec m6st of her coal from the United States. One-
third of the coal imported into Canada is used by the rail-
roads. It will be many years before the coal deposits in the
western provinces are sufficiently developed to change this
situation and a marked reduction in transportation cost
would also become necessary to interfere with the advantage
which the United States has in supplying fuel to this impor-
tant portion of the dominion.

The following table gives in comparative form for a period
of years the amount of coal produced, the consumption, the
imports and the exports:

74 1

BANKERS TRUST COMPANY

COAL PRODUCTION AND CONSUMPTION

(00,000 omitted)

Short Tons

Pro-

Con-

Imports

Calendar

% Con-

Net

Year

duction

sumption

Tons

sumption

Exports

Imports

1913

15,0

31,5

18,1

57.4

1,6

16,5

1914

13,6

26,8

14,6

54.5

13,2

1915

13,2

23,9

12,4

51.9

1,8

10,6

1916

14,4

29.8

17,5

58,7

2,1

15,4

1917

14,0

33,1

20,8

62.8

1,7

19,1

1918

14,9

34,7

21,6

62.2

1,8

19,8

1919

13.5

28,6

17,3

61. 1

2,0

15,3

The major part of the coal imported was obtained from
the United States and the coal exported went chiefly to the
United States. The tonnage and value of the coal exported
from the United States to Canada and the relation of these
exports to the total merchandise exports from the United
States to Canada can be determined by referring to the
next table;

EXPORTS FROM UNITED STATES TO CANADA

(00,000 omitted)

Total

Coal Exports to Canada

Mer-
chan-

Year

Ended

dise

Anthracite

Bituminous

Total

^%,

June 30

Exports
to

Total

Canada

Tons Value

Tons

Value

Tons

Value

Exports

1913

415,4

4,5

24,1

11,9

29,1

16,4

53,2

12.80

1914

344,7

3,8

20,5

11,4

26,6

15,2

47,1

13.66

1915

300,6

3,6

19,1

8,4

18,3

12,0

374

"•44

1916

468,7

3,7

19,7

10,4

21,0

14,1

40,7

8.68

1917

787,1

4,5

25,2

12,9

32,8

^7,4

58,0

7.36

1918

778,4

4,4

28,8

16,2

57,1

20,6

85.9

11.03

1919

813,7

4,5 26,2

16,6

44,4

21,1

70,6

8.67

THE DOMINION OF CANADA [ 75

Forest Products

The forests of Canada are one of the dominion's greatest
assets. On the whole, they have been more wisely exploited
than has been the case in the United States. The total area
covered by standing timber is estimated to be between
500 million and 600 million acres. Of this acreage, it is
estimated that about one-half is covered with timber suitable
for sawing into lumber. A large part of the remaining acreage
is covered with trees suitable for manufacture into paper
pulp; also for local use such as mine props, fencing and fire-
wood. The principal varieties of trees are spruce, Douglas
fir, white pine, cedar; also hardwoods, such as oak, ash, hickory,
and the several varieties of the maple.

Canada's supply of merchantable timber is estimated to
be about one-fourth of the supply available from the United
States. In regard to relative timber resources, Russia is said
to stand first, United States second, and Canada third.

The total capital invested in lumbering at the close of the
fiscal year 191 8, is officially estimated to have been about
$180 million, of which logging arid' timber plants contributed
^36,500,000, mill equipment $53,791,000; the remaining in-
vestment represented working capital in the form of bills and
accounts receivable and cash. There were 3,086 operating
plants employing about 60,000 people, of whom 26,736 were
employed in the woods and 30,000 in the mills. The total
amount paid in wages was $44,490,000. The aggregate value
of production for the year was $144,908,000 divided as fol-
lows: Sawed lumber, $102,335,000; shingles, $8,124,000;
lath, $1,560,000; pulpwood, $18,416,000; miscellaneous prod-
ucts, including cooperage stocks, poles, crossties, posts.

76 ] BANKERS TRUST COMPANY

veneer, etc., accounted for the remainder. By provinces the
quantity and value of the output of sawed lumber in 1918
was as given below:

LUMBER OUTPUT IN 1918

Quantity Value

Province •m.ft.b.m. $

Alberta 22,388 473i694

British Columbia . . 1,141,197 27,992,976

Manitoba 54i047 1,240,052

New Brunswick . . . 439,625 12,189,312

Nova Scotia .... 166,332 4,089,039

Ontario ...... 1,182,328 33,165,137

Prince Edward Island 6,393 136,336

Quebec 841,084 20,916,604

Saskatchewan . . . 75,835 2,122,307

Yukon 229 10,315

Dominion .... 3f929,458 102,335,772

* 1000 feet board measure.

Fisheries

Canada possesses perhaps the most extensive fishing
waters in the world and they are said to contain the principal
food fishes in greater abundance than the waters anywhere
else. The coast line of the Atlantic provinces covers about
5000 miles, while the sea areas to which this forms the natural
basin embrace the Bay of Fundy, 8000 square miles in extent,
the Gulf of St. Lawrence, fully ten times that size, and other
ocean waters aggregating not less than 200,000 square miles
or over four-fifths of the fishing grounds of the North
Atlantic. Then there are the vast area of Hudson Bay, of the
great number of lakes and rivers which together are esti-
mated to cover 220,000 square miles, or more than half the
fresh water of the globe, and finally the Pacific coast, over
7,000 miles long.

THE DOMINION OF CANADA [ ^^

The commercial food fishes are principally cod, haddock,
halibut on the Atlantic coast and salmon on the Pacific
coast, although there is a very extensive halibut fishery also
in British Columbia. The most extensive lobster fishing in the
world is carried on along the whole of the eastern shore of
Canada, while oyster beds exist in many parts of the Gulf of
St. Lawrence, notably off Prince Edward Island. The total
value of all fish and fish products niarketed in 1918 was
^60,250,000 compared with ^52,3x2,000 in 1917. The amount
of capital invested in the fisheries of Canada in 1917 was
^60,221,000 compared with ^47,143,000 in 1907.

The Fur Trade

Finally, in the list of Canada's natural products we have
the fur trade which has been an important part of Canada's
industry since the earliest years of the French regime when
it was a monopoly of the proprietary companies. Until re-
cently the operations of the trade were in the main confined
to the trapping of the fur-bearing animals and exportation
of the furs in an undressed state to London or the United
States either for sale at public auctions or consigned to
dealers in those places. The war has brought about an im-
portant change in this respect. A much larger percentage of
the furs is now dressed and manufactured in Canada. The
exports of dressed and undressed furs from Canada to England
and the United States for the years 1914, 1918 and 1919 are
shown in the following tables:

EXPORTS OF UNDRESSED FURS
To 1914 1918 1919

Enp^land .... $3,000,000 $1,600,000 $3,700,000
United States . . 2,100,000 6,300,000 9,600,000

ALL FURS
All exports . . . $5,500,000 $8,000,000 $13,500^000
Imports .... 2,200,000 2,900,000 '^^^^^^^j:^^^

78 ] BANKERS TRUST COMPANY

In 1914 England received the greater part of the Canadian
fur exports. By 191 8, 78 per cent, of the exports were going
to the United States and only 20 per cent, to England. In
1919 the percentages were, respectively, 71 per cent, to the
United States and 27 per cent, to England. Canada's fur re-
sources are very great. Labrador, the maritime provinces,
Quebec, northern Ontario, the Northwest Territory and Brit-
ish Columbia all contribute to the annual production. A very
important fact to note in connection with the fur trade is that
Canada is no longer depending for its supply of skins upon
the trapping of wild animals. Canadian fur farmers now
breed silver, black, red and blue fox, Persian lamb, raccoon,
mink, marten and skunk.

Prior to the war the principal market for furs was in
London. In 191 5 the first American fur auction was held at
St. Louis; in 1917 auctions were commenced in New York.
Auction sales are also now held in Montreal and it is expected
that they will take place three times a year, in the Winter,
Spring and Fall. It is believed that these auctions will attract
the most important of the world's fur buyers and insure a
higher level of prices, bringing to Montreal furs for sale from
all parts of the world and establishing Montreal as an inter-
national center for the trade.

Water Powers

In summing up the natural resources of Canada we must
not lose sight of her vast water powers, developed and in
reserve.

The per capita water power developed in Canada is said
to be larger than in any other country except Norway. The
potential and developed water powers of the United States
are greater than for any other country in the world. Canada

THE DOMINION OF CANADA

I 79

ranks next. The United States has utilized about 25 per cent,
of her available water powers while Canada in the populated
sections has utilized about 21 per cent. Taking into account,
however, the less populated portions of the country, but
excluding the Yukon and the Northwest Territories, improb-
able of immediate development, less than nine per cent, of the
potential water power is utilized.

The following is a comparative table of available and
developed water power in the principal countries of the world.

WATER POWER OF THE WORLD

POTENTIAL AND DEVELOPED

Annual Basis

(000 omitted)

H. P.

H.P.

Country

H. P.
Avail-

H. P.
Devel-

Avail-
able

Devel-
oped

Per Capita

able

oped

PerSq.

Avail-

Devel-

Mile

able

oped

t Austria-H ungary

6,500

566

26.81

2.35

.13

.01

Canada ....

19,500

2,305

9.75

1. 15

2.21

.26

France ....

8,000

1,200

38.64

5.79

.20

•03

Great Britain .

900

210

7.37

1.72

.02

.005

fGermany . . .

1,425

618

6.81

2.95

.02

.01

Italy ....

7,000

1,500

63.06

13-51

.19

.04

Norway. . .

5,500

1,300

44.00

10.40

2.29

.54

Spain . . .

5,000

438

26.31

2.30

.25

.02

Sweden . . .

6,700

1,105

38.72

6.38

1. 17

.19

Switzerland .

2,000

125.00

31.93

.51

.13

United States . .

30,000

7,000 9.91

2.31

.28

•07

fAs formerly constituted.

That Canada is one of the great water power countries
of the world is due largely to the nature and extent of water
and the abundance and seasonable distribution of rainfall,
the fortunate location of waterfalls and the fact that. Vn&'c

THE DOMINION OF CANADA [ 8 1

water powers have been thoroughly investigated and are in-
telligently administered.

In general, Canadian water powers are applied to three
uses: (a) municipal purposes, (b) for manufacture of pulp
and paper, and (c) for electro-chemical and similar processes.
Of the developed water power about 78 per cent, is used for
municipal purposes, about 14 per cent, for the pulp and paper
business and about eight per cent, for electro-chemical or sim-
ilar processes.

The products of the electro-chemical industry are ex-
tremely diversified. They include aluminum, silicon, cal-
cium-carbide, cyanamid, ferro-alloys, graphite, carborundum,
chlorine, and other products many of which are indispensable
in arts and manufactures. Without aluminum the modem
high-speed aeroplane could not exist and without the electro-
chemical abrasives and ferro-alloys manufacturing processes
would be lengthened many fold. One of the most important
electro-chemical processes is the fixation of nitrogen. About
30,000 h.p. is used for this purpose at Niagara by the Ameri-
can Cyanamid Company.

There are 2,000,000 h.p. of electrical energy generated in
Canada at the present time, 90 per cent, of which is produced
by hydro-electric generating plants. It may be noted that
some of the principal water powers of Canada are located in
the very provinces of Quebec and Ontario in which there are
no coal deposits. In 1919 Quebec had 119 power plants with
a capacity of 625,000 h.p., of which 92 with a capacity of
585,000 h.p. were hydro-electric. Ontario had 173 plants
with a capacity of 899,000 h.p., of which 113 hydro-electric
plants had a h.p. of 831,000.

Of the developed hydro-electric plants, that of the Niagara
system which is under public owners\\\p \% iJcv^ X'ax^'sx- X\-

82 ] BANKERS TRUST COMPANY

has a load of 20I9OOO h.p., supplies 120 municipal distributing
systems and serves an area 182 miles long and 85 miles wide.
The total Canadian electric development at Niagara is
4889OOO h.p.9 comprising three large power plants, including
the public plant above mentioned. The privately owned
Shawinigan system in Quebec with a load of 205,000 h.p. sup-
plies 76 systems and serves a triangular area with a base of
140 miles and a height of 75 miles.

We are indebted to the Commission of Conservation of
Canada for the interesting chart printed on page 80, which
brings out in graphic form the facts in regard to the developed
electric plants of Canada. The distribution of the available
and developed water power between the diflFerent provinces
is given in the next table:

DISTRIBUTION OF WATER POWER

Province Available Developed

h. p. h. p.

per annum per annum

Ontario 5,800,000 985,060

Quebec 6,000,000 842,761

Nova Scotia 100,000 26,024

New Brunswick 300,000 I4»869

Prince Edward Island . . 3,000 i»729

Manitoba 3,218,000 76,172

Saskatchewan 567,000

Alberta 466,000 32,880

British Columbia . ... 3,000,000 213423

Yukon 100,000 I3>392

Total for Canada . . . 19,554,000 2,305,310

The bearing of these great resources upon the future
manufacturing power of the country is significant, especially
when the fact is held in mind that the electric power com-
panies are adopting a policy of maintaining industrial depart-

THE DOMINION OF CANADA [ 83

ments whose duty it is to locate industries in the territory
served by such companies. The combination of cheap power,
favorable living conditions for labor and good labor markets
is rapidly transforming Canada from a country which a few
years ago was almost wholly agricultural to one in which the
manufacturing interests are of great and growing importance.

Chapter IX
Manufacturing Industries

CANADA has made great strides In manufacturing devel-
opment. In 1890 the output of manufactured products
was valued at $368,700,000. Ten years later, in 1900, the
value of manufactured products was estimated at about
$480 million. The output for 1910 was valued at $1,165,-
975,000; for 1915, at $1,381,547,000; and for 1917, the last
year for which statistics are available, at $39015,577,000.
While such a rate of acceleration may be regarded as abnor-
mal, having been greatly stimulated by the need of supplies
for the army and of munitions, yet undoubtedly the manu-
facturing Industries of Canada are firmly established upon
the secure basis of ample supplies of the principal raw mate-
rials, of cheap water power, and of a high degree of mechanical
and managing skill. Probably about $3,000 million is now
invested in manufacturing enterprises.

One marked result of the war has been the change in the
relative importance of agricultural and industrial pursuits.
This may be illustrated best, perhaps, by the following com-
parative table of total merchandise exports of domestic
products and the percentages of agricultural products and of
manufactured products to the total.

(In Millions)

Year ended March 31 1914 1915 1916 1917 1918 1919

t t t t t t

Total Exports 431 409 741 1,151 1,540 1,216

Agriculture * . . . 198 134 249 373 568 271

%AgricuUure 45. p J2.7 33.6 32.4 36*8 22.3

Manufactures 57 85 242 477 636 555

% Manufactures 13.2 20,7 32,6 41.4 41,3 4S.6

S4J

THE DOMINION OF CANADA [ 85

To Students of history the profound importance of this
increased activity in industrial undertakings will be apparent.
The impetus given by the war necessities to manufacturing
will not be lost, but undoubtedly will prove to be one of the
most important developments of that period.

Census of Manufactures

The Dominion Bureau of Statistics has published inter-
esting data compiled from a recently completed census of
manufactures for the year 1917. These data are the latest
official statistics available in regard to manufacturing enter-
prises in the dominion. The returns cover 34,380 establish-
ments and show a remarkable development in this branch of
Canadian industry when compared with the census of 191 5
as summarized in the following table:

MANUFACTURING STATISTICS
(000 omitted)

Calendar Year 1917 1915 Increase

Capital invested $2,772,517 $1,994,103 $778,414

Employees on salaries .... 73 52 20

Salaries paid $95»983 $60,308 $35»675

Employees on wages (includ-
ing pieceworkers) 619 462 157

Wages paid $457,245 $229,456 $227,789

Cost of materials 1,602,820 802,133 800,686

Value of products 3,015,506 1,407,137 1,608,369

It will be noted that the gross value of goods made in
Canada in 1917 was upward of $3,015 million, while the cost
of the materials was upward of $1,600 million, leaving a net
value added by the process of manufacture of upward of
$1,400 million.

86 ] BANKERS TRUST COBfPANY

What the census terms ''twenty leading industries"
which contributed 57 per cent, of the gross value and 51 per
cent, of the net value of the total products may be roughly
classified into five groups. The metal trades and building
operations lead all the others. Animal products such as
meaty butter and cheese, and manufactures of leather, includ-
ing boots and shoes, provided the next largest amount toward
the gross total. Then came the manufactures of vegetable
products, such as flour and other grist-mill products, bread,
confectionery and refining of sugar. Last but one in impor-
tance in gross output we have the manufactures of wood, such
as lumber in its various forms, pulp wood, paper pulp and paper.
However, while the forest products were fourth in impor-
tance so far as gross output is concerned, they came second in
importance so far as net value of the output is concerned.
Electric light and power and electrical appliances and sup-
plies furnished the fifth largest item in connection with both
gross and net output. These facts are more deariy indicated
by the following table:

PRINCIPAL MANUFACTURES-CLASSIFIED

Calbwdar Year 1917
(00,000 omitted)

Mbtals and BinLDiNG Gross Value Net Value

Sleel f uHMioet $170,6 $62,0

Muaidoiis 112,8 70,2

Gii%«lc 78.5 39,8

Smehing 69,2 33,6

FoiiMiry» «lc. 66,9 43»3

irai and Sleel products 58,8 26,8

54.5 18,8

54.7 33,9

666,0 327.4

THE DOMINION OF CANADA [ 87

PRINCIPAL MANUFACTURES-CLASSIFIED— C(w<»«tt«f

Animal

Meats 206,6 50,7

Butter and cheese 85,7 13,7

Boots and shoes 49,1 224

Leather 41,1 14,5

382,5 101.3

Vegetable === ==

Flour and grist-mill products 224,1 40,6

Bread, biscuits and confectionery .... 77,2 33,0

Sugar, refined 73,2 20,1

374,5 93,7

Forests ===== ===

Log products 115,8 75,1

Pulp and paper 96,3 61,6

212,1 136,7

Electric === s===3

Light and power 44,5 44,5

Appliances and supplies 40,2 20,0

84,7 64,5

Grand Total $1719,8 $723,6

Up to the present time Canada has necessarily imported
an important part of the raw materials entering into the man-
ufacture of metal products. On the other hand, the vegetable,
animal and forest products, with the exception, of course, of
sugar, certain chemicals, and, to a certain extent, of leather,
are largely manufactured from raw materials produced within
the dominion.

At the present time the United States is dependent on
Canada for an important part of her supply of newsprint
paper and of wood pulp and pulp wood from which such
paper is manufactured. In 1914 we imported about 20 per

88 ] BANKERS TRUST COMPANY

cent, of the paper consumed, while in 1919 the imports, chiefly
from Canada, were around one-third of the consumption.

Developments in the iron and steel trade of Canada now
in process with a view to the consolidation under the manage-
ment of one great corporation of the diff^erent industries de-
pendent upon iron and steel for their raw material are ex-
pected to revolutionize manufacturing along these lines.

Foreign Owned Factories

An important post-war development is that of the opening
of branch factories in Canada by British manufacturers, a pol-
icy heretofore pursued and now being developed in a marked
way by manufacturing interests from the United States which
on good authority are stated to have over 600 branch or sub-
sidiary factories in Canada. Representative American owned
plants or plants largely so owned are those of the Interna-
tional Nickel Company; the Montreal Locomotive Works-
Ltd., owned by the American Locomotive Company; The
Canadian Consolidated Rubber Co., owned by the United
States Rubber Company; the United States Steel Corpora-
tion's plant at Hamilton, Ont.; the Ford Motor Company
of Canada, Ltd.; the Canadian General Electric Company,
Ltd.; and subsidiaries of the International Paper Com-
pany. Canada thus gains the advantage of the develop-
ment of its industries by foreign capital and of industries
necessary to supply their requirements. The increased
population which such industries encourage provide an added
market for the food products of the dominion. On the other
hand, the profits of these industries to the extent that they
are not reinvested in the businesses are taken out of the
country instead of being used in its development as would be
the case if these industries were owned at home.

THE DOMINION OF CANADA [ 89

^^Made in Canada'^ Campaign

The "Made in Canada" movement is daily gaining
strength. The government is in sympathy with the cam-
paign. It has the support of the Canadian Trade Commission,
Canadian Reconstruction Association, Canadian Manufac-
turers Association and other public bodies. Various organiza-
tions, such as the National Council for Women, the Daugh-
ters of the Empire, and the Daughters of Canada, have urged
upon women buyers the necessity of buying Canadian goods.'
Labor papers have endorsed the campaign and exhibitions of
"Made in Canada" goods are being promoted at home and
abroad. Moving pictures are being used to the same end.

The reason given for this special campaign is the heavy
discount on Canadian exchange in New York for which it is
believed the only permanently effective remedies are an in-
crease in production in the dominion, development of export
trade, curtailment of unnecessary imports and substitution,
to the largest possible extent, of Canadian products for im-
ported commodities. It is felt that Canada must obtain a
larger measure of economic independence.

Canadian men of business believe that the world exchange
situation threatens seriously to curtail orders from overseas,
especially for manufactures, and that if the slack is to be
taken up it must be by an increased support from the home
market.

It is important that American manufacturers and export-
ers, as well as our bankers, should carefully note these facts
and do everything in their power to bring back to parity the
Canadian-United States exchanges. We cannot afford to be
indifferent to a condition which so vitally affects trade rela-
tions with so important a customer as theDoTam\OTiQS.C:^sc^^'^

90 ] BANKERS TRUST COMPANY

On the other hand, as is fully realized by enlightened public
opinion both in Canada and in our own country, as well as
in the money centers overseas, this is not merely a Canadian-
United States problem. It is a world problem the only per-
manently effective remedy for which is for the world once
more to settle down to work, to stop all governmental and
private waste, for the governments to stop new borrowing
and pay their way from taxation and to pay off or refund
governmental floating debts and for the people to pay for
their government bonds and take them out of bank loans.
When these things are done this world dislocation of the ex-
changes and of industry will be righted and not until then.
It is encouraging to know that in Great Britain and in Canada,
as well as in our own country, such measures are being in-
augurated. If courageously carried through, they should in
the not distant future bring about the needful readjustments.

Chapter X
The Tariff

CANADA has a protective tariff which figures out at a
slightly higher rate on dutiable goods than in the United
States. During the war Canada added a 7^ per cent, war tax
on her customs duties on many articles, and so long as this
was in force, it raised Canada's average rate about 5^ per
cent, above the present rates. This war tax was first imposed
late in 191 5 and continued in force until May, 1920. Canada's
tariff is now back to its pre-war level. The latest figures
available afford the following comparisons:

U. S. A. Canada

Year Ended Year Ended

Dec. 31, 1919 Mar. 31, 1920

Total imports of dutiable goods . . . $1,205,202,766 $693,643,211

Total imports of free goods 2,699,203,561 370,872,966

Total duty collected 249,774,758 ti87f524,i82

» 156.154,885
Average duty collected on all imports . 6. 39% ti7-6i%

» 14.66%
Average duty collected on dutiable

imports 20.72% f 27.03%

» 22.51%
Average tariff duty collected by head

of population $2.33 t$20.83

» 1735

fWith war tax. ii^Without war tax.

Canada's imports of dutiable goods in June and July of
1920, subsequent to the repeal of the war tax, were $174,392,-
421. The duty collected was $36,114,948, or 20.71 per cent.;
substantially the same as the average of 20.^^ v^x ckox. ^^-

92 ] BANKERS TRUST COMPANY

lected by the United States for 1919. This is nearly two per
cent, lower for Canada than the average of the twelve months
ending March 31 with war tax omitted.

From an inspection of these figures it is apparent that the
United States has relatively a much larger free list and that
the incidence of the tariflFupon her people is very much lighter
than in the case of Canada. In addition to the high protec-
tion afforded by the tariff, Canada's manufacturers have
received many other special favors. There have been large
federal bounties to industries and several of the provinces
have given bonuses, loans, tax exemptions and reduced assess-
ments to those establishing industrial enterprises within her
borders. Since April, 1919, the premium on New York ex-
change has operated as an additional stimulus to Canadian
home trade, as it has been equivalent to an additional protec-
tive duty, which for several months past has averaged around
ten per cent.

The Canadian tariff is of a threefold character. There is
the "general tariff," a "preferential tariff" with Great Brit-
ain and certain of the British dominions and colonies, and
an "intermediate tariff," of which several nations have the
benefit in part.

The Preferential Tariff

For some time Canada has had reciprocal trade agreements
with the United Kingdom, New Zealand, South Africa and
British Guiana. Australia does not extend any tariff prefer-
ence to Canada. Reciprocal trade agreements have been in
force between Canada and the British West Indies since
1913, and by the trade agreement concluded at Ottawa in
July, 1920, the existing mutual preference is, in certain cases,
increased, while the free list is also extended. Under the

THE DOMINION OF CANADA [ 93

terms of this agreementy Canada grants a preference on all
goods imported into Canada being the produce or manufac-
ture of any of the British West Indies, which are now subject
to duty or which may be made subject to duty at any future
time.

The Intermediate Tariff

In 1907 a commercial treaty with France brought most
French imports under a special intermediate tariff. This
tariff was automatically extended to "favored nations," in-
cluding Argentina, Denmark, Japan, Norway, Russia, Spain,
Sweden, Switzerland and Venezuela. This French treaty
was denounced by Canada and France in June of this year,
but the favored nations continued to enjoy the benefits of
another intermediate tariff which was originally arranged
and is still effective with Belgium and the Netherlands and
which is only slightly higher than the intermediate tariff
with France.

Customs Duties Important Source of Revenue

Canada's tariff on imported goods not only is used to de-
velop manufacturing enterprises, but the customs duties col-
lected under this tariff provide an important portion of the
revenue of the dominion; in fact, the revenue from the customs
is the largest single source of revenue which the dominion
enjoys, affording 43.33 per cent, of the revenue for the last
fiscal year and 51.30 per cent, of the total revenue for the six
years elapsed since the war with Germany was begun.

Inter- Provincial Trade

The commerce between the provinces is free, just as v& tiv^
commerce between the different states o£ tVve\iTv\xjb^^x.'aXft&«

94 ] BANKERS TRUST COMPANY

However, there is this important difference: that in the United
States there are all kinds of climates and products so that this
freedom of trade within the boundaries of the country is of
great importance and brings about a balanced trade which,
while it does not free the United States from the necessity of
importing foreign products, does to a large extent make our
people self-supporting. In the case of Canada, there is not
the same diversity iii the home trade, while the needs of the
people for foreign goods are substantially the same through-
out all the provinces. This condition, however, has been
changing materially in recent years because the eastern prov-
inces have been devoting their activities along agricultural
lines more to the production of dairying products and fruits
and root crops and less to the production of cereals which, to
an important degree, have become a monopoly of the middle
western provinces. The development of manufacturing has
also made it possible for the eastern provinces to supply the
western provinces to a large extent with agricultural and other
machinery.

Still, after making all allowances, the fact remains that the
country as a whole seeks outside of its own borders a large
percentage of the necessities and luxuries of life and that it
must also to a great degree come to the United States for the
raw materials of manufacture.

Imperial Preference

As an illustration of the disposition on the part of the Brit-
ish family of nations to encourage what might be called em-
pire "home markets" it is interesting to note that the Brit-
ish chancellor of the exchequer announced in his budget
speech in April, 1919, that he proposed to introduce a measure
of protection giving substantial preference to countries within

THE DOMINION OF CANADA [ 95

the empire. This was greeted with unanimous approval
by those who hoped for greater cooperation and closer ties
between the dominions and colonies and the motherland.
The expectation was that this preferential treatment would
benefit especially the tropical portions of the empire which
would find opened to them a natural market of a character
which would enable them to extensively develop their fruit-
ful lands. Based on this recommendation the British parlia-
ment enacted a law which became effective on September i,
1919. This law applies to goods which are shown to the
satisfaction of the customs authorities to have been (i) con-
signed from, and (2) grown, produced or manufactured in the
British empire. Goods are deemed to have been manufac-
tured in the British empire, provided 25 per cent, of the cost
of manufacture is shown to have been the result of labor
within the empire. However, in the case of manufactured
tobacco, refined sugar, molasses and other extracts of sugar,
the proportion of empire labor is fixed at only 5 per cent., but
preferential rates apply only to such proportion of these goods
as corresponds to the proportion of material of empire origin
used in their manufacture.

The preferential rebates granted under this act amount to
one-third of the duty in the case of manufactured goods and
one-sixth of the duty on foodstuffs and tobacco. There is a
special schedule of rebates on wines and spirits. Canada is
expected to derive considerable benefit from this legislation.

Chapter XI
Foreign Trade

'TpHE commerce of Canada has grown steadily year by

-■" year. For the five fiscal years ended June 30, 1902-1906,

inclusive, the merchandise imports for consumption averaged

^5239,956,000. For the five fiscal years ended March 31, 1908-

191 2, inclusive, they averaged ^5396,621,000, while the average
of the five fiscal years 1913-1917, inclusive, was $619,433,000.
In the fiscal year 1918 the imports were ^62,543,000, in 1919,
J59 1 6,429,000, and in 1920, j5i,o64,5 16,000.

The exports of Canadian merchandise for the fiscal years
1902-1906, inclusive, averaged ^5207,034,000; for the fiscal
years 1908-12, inclusive, they averaged ^5266,670,000; for

1913, they were J53 55,754,000; for 1914, J543 1,588,000; for
191 5, ^5409,4 1 8,000. Thereafter the exports were greatly
increased on account of shipments of munitions and other war
supplies, reaching a maximum in the fiscal year 191 8 of
j5i,540,027,ooo. As was to be expected, a return to peace
conditions materially reduced the value of the exports
which totaled $1,216,443,000 for the fiscal year 1918-1919.
In the year ended March 31, 1920, the exports were $1,286
million.

The foreign trade of Canada during and since the war
is discussed in considerable detail in Chapter II, beginning
with page 13. The supplementary tables printed herewith,
set forth in comparative form the data for each of the past
seven years.

96J

THE DOMINION OF CANADA

[97

FOREIGN TRADE

MERCHANDISE EXPORTS CLASSIFIED
(000,000 omitted)

Years Ended

1914

1915

1916

1917

1918

1919

1920

March 31

Imports

For Consump-

tion

(Mdse.). . . .

619

465

608

846

962

916

1,064

Exports

Canadian Produce

Mines ....

♦♦^

Fisheries . . .

Forests ....

Animals . . .

103

128

173

199

Agriculture . .
Manufactures .

198

134

249

373

568

271

242

477

636

555

Miscellaneous .

• • •

Total . . .

431

409

741

1,151

1,540

1,216

1,239

Foreign Produce .

Total Enorts—

(Mdse.). . .

4S6

461

779

1,179

1,686

1,268

1,286

Total Merchan-

dise Trade

1,074

916

1,287

2,024

2,548

2,184

2,350

Balance of Trade

(Mdse.)

Excess Imports.

164

• • •

• • • •

Excess Exports.

• • •

271

334

624

362

222

Specie — Net

exports ( — ) or

imports (+) . .

—8

+ 102

-69

~i68

United Kingdom

Trade — ^Excess

Exports to . .

122

386

649

780

487

370

United States

Trade — Excess

Imports from .

2X8

III

153

374

352

270

300

**0]i aooount of adoption of new olaanfioation oomparative figures for items
cannot be oiven. t Figures not published. ^Siz years 19x5-1930, |2,794
million. 0<^Siz years 19x5-1930, |x,56o million.

The recent adoption of a new system of classification
gives interest to the next table comparing the busiive.s&

BANKERS TRUST COMPANY

of the year ended March 31, 1920, with that of the previous
fiscal year.

FOREIGN TRADE

MERCHANDISE EXPORTS CLASSIFIED 1919-1920

(00,000 omitted)

.0.9

.MO

tlmDOrt.

Eioorw

Imporu

Ejport.

Prw

Dutl-

m^ie

For-

m^ti.

abli'

Free

dgD

products, mainly foods . .
Aericultural and veKelable

Anirnsb and animal pioducta
Fibre.. IHtiles and cciUie

product.

Chanlcal> and chemical prod-
uct.

Ora. metala and metal manu-
hctureg, other than iron
>iid««l

Non-metallic minerala and

Wood, wood Dtiiducls. paper
MlBcellaneoua

39,6
I6,p

73,8

.8.S

.„

ISA

Jfi.7

as.4

14.3
89.3

as. I

80,6

1S4.6

355,0

6.1
3,4

48.3
43.1

IJ.2

S8.a
■ 8.3

"8.5
38,4

614

34.8
40,6

t
383.3

31.8
34.0

8j,i
SS.1

11,6

4.8

1.5
6.5

3,9

3,5

a.s
o.S

*Tolal

„..

,"6,4

1.J164

IS,,!

370.8

6g.v6

1,339,4

47..

Total trade

016,44

..»68,T

1.064,4

i.j86,s

Duty collected . . . .

.58.0

ia;.s

Canada^ s Principal Customers

Canada interchanges more business with the United States
than with any other nation in the world, although the trade

THE DOMINION OF CANADA [ 99

is not a balanced trade, the imports from the United States
largely exceeding the exports to our country. On the other
hand, the United Kingdom is Canada's second best customer,
but in her case the exports from Canada largely exceed the
imports from the United Kingdom.

The trade of Canada interchanged with the United King-
dom, the United States, and other countries for the fiscal
years ending March 31, 1914-1920, inclusive, may be seen by
reference to this comparative table:

FOREIGN TRADE

MERCHANDISE

With United Kingdom, United States

and other countries

(000,000 omitted)

FIkb] Years

a)l

1B16
1

all

United Kingdom
EiDortsto . .

:::

lS.8

i6^

736

54 1

■;:

■.*;;

560

":;

40fi

18. S7
■ ..84

Total trade

U.o

30.

«,o

S63

,.6

»■

36 -B

033

„..

S)i

«5-47

United StatH
Exportato . .

18, B

1B6

W.3
5S.3

■;:

s::

14?

;t:J

Soi

Total trade

.7.

S3.A

4«3

S=.J

SS?

*S-6

934

.7..

...J.

48-4

I, J 24

s6.o

IJDI

S5 40

All other muntricE
Eiports to .

;::;

63
68

;::

;:::

■s

S 7

3S5

■-

■s

\l'i

i8g
131

ta.SS

Tota] trade

...

.1..

-31

..-»

l6o

,.,

».l

175

.4-7

32I

.S.o

A16

.8.3

Eipottsto .
Importa from

t^l

461

;™

sol

'sis

■ .556
b6j

100

i.a6B

100

1.386
1,064

Total trade

i,0J3

100

gi6

.00

1,38?

.»

lAatW W.S^«« Y .^*W

^H""

Chapter XII
Invisible Trade Balance and the Exchanges

TN reviewing the trade of Canada it is important to con-
sider what, for lack of a better term, are known as the
"invisible" exports and imports.

Invisible Trade Balance

For years prior to the war Canada was a heavy borrower
in British money markets. Not the dominion government
alone, but also the provinces, municipalities and the public
and private corporations borrowed in Great Britain a large
part of the capital required for governmental purposes and
for the development of the country's material resources. It is
estimated that Canada owes to Great Britain on account of
public and corporate borrowing around j52,sob million, the
interest on which sum calls for annual remittances to London
of some j5i2S million. Then the major portion of Canada's
overseas trade is carried in British ships, while the cargoes
are largely insured in British insurance companies. The
fire insurance business of Canada is conducted largely by
British or British owned insurance companies. Considerable
blocks of Canadian bank stocks are also British owned. The
dominion statistician estimates that for the period 1900-1914
the invisible imports called for remittances, chiefly to Great
joo)

THE DOMINION OF CANADA [ lOI

Britain, averaging $275 million a year. Recent estimates
place the amounts due annually for interest, dividends, freights
insurance, et cetera, to Great Britain and to other European
nations at an aggregate of perhaps JS250 million. Assuming
all such payments eventually to be cleared through London,
they would materially reduce the net trade balance due from
London — say for the fiscal year just ended from {{370 million
to around JS120 million.

On this continent the adverse balance of trade with the
United States has been increased in recent years by the fact
that Canada, always a considerable borrower in the United
States, has greatly increased her borrowings during the years
of the war, while United States manufacturers have found it
advantageous, on account of the Canadian tariff, to manu-
facture in Canada goods to be sold there and consequently
have made large investments in subsidiary factories located
in Canada. It is estimated that the interest and profits pay-
ments to United States investors as a consequence of this
condition run into large figures, perhaps aggregating JS75 mil-
lion or more a year. Whatever such payments amount to,
they correspondingly swell the amount due on balance to the
United States. Canada must also pay the United States on
balance quite a large amount annually for flife insurance
premiums and for freights, interest, and insurance on business
interchanged.

On the other hand, the "principal" of the new invest-
ments and that represented by the reinvestment of profits by
Americans from time to time act as a corrective to the ad-

t36 per cent, of the life policies in force in Canada are carried by American life
Insurance companies.

I02 ] BANKERS TRUST COMPANY

verse exchange conditions. The present tendency is to in-
crease these American investments in Canada and for Brit-
ish investments to decrease by reason of home demands and
of the costliness of remitting British funds to Canada under
present exchange conditions. Total Canadian bond sales in
the United States increased from $54. million in 1914 to over
JS199 million in I9I9> while such sales in the United Kingdom
decreased from JS186 million in 1914 to $S niillion in 1919.
The total American investment in Canada is variously esti-
mated at from {^1,250 million to jSi,6oo million, or say about
one-half of the British investment.

Recently exchange conditions have favored the purchase
in London by Canadian investors of Canadian securities
held there. This movement was assuming important pro-
portions when the government interposed in the interests of
the general trade situation.

After a conference with the minister of finance the banks
and the bond dealers came to a voluntary understanding with
the government to discontinue such purchases for the time
being. It is estimated that during the war period around
JS200 million securities, par values, were repurchased from
England. All but some $25 million to JS30 million are sup-
posed to have been resold in the United States.

The total investment of foreign and British capital in
Canadian securities and properties at the present time is
probably not far from ^{4,000 million, calling for annual pay-
ments for interest and profits aggregating around J5200 mil-
lion.

We may summarize these data as follows:

THE DOMINION OF CANADA

[103

INVISIBLE TRADE BALANCE

For six years 1914-1919, inclusive

In Millions

To Great
Britain or
Payments by Canada settled

though G.B.

To
United States

Interest and profits payment . . .

$750

$330

Shipping charges, insurance, etc. .

240

Goods sold on credit to Rumania

and Belgium

• • • •

Net advances to Great Britain . .

• • • •

By Dominion Government . 138

By Chartered Banks .... 200
Securities repurchased

338
200

• • • •
■ • • •

Less for securities — sold

1,588
298

420
900

Total . . .

1,290

480*

^Receipts from U. S.

TAe Exchanges

We are now in a position to intelligently consider the bear-
ing of the trade statistics^ in banking parlance, upon ''the ex-
changes." Ordinarily the average man in business is willing
to leave such questions to be handled by those of the banking
fraternity who deal in "foreign exchange." On account of
the manner in which all lines of business are now affected by
the world-wide dislocation of business and the greatly in-
creased interchange of business with foreign countries during
the war and since the armistice, an understanding of foreign
exchange problems has become a necessary part of the equip-
ment of almost every man in business.

The fundamental principles of "exchange" operations are
quite simple. If the purchases and sales betw^exv \:«<^ ^^xx^ ^2^

I04 ] BANKERS TRUST COMPANY

our own country or between our country and another exactly
balanced, the drafts would meet in the clearing house and
cancel each other and there would be no exchange problem.

It is the fact that trade does not .so balance that creates
the necessity for the use of banking methods which will
permit commerce to take its course to any country and at any
time of the year, wherever and whenever a profitable market
for its wares can be secured.

P re-War Exchange Conditions

Prior to the war, by common consent, London was the
great clearing house of the world. It had become well-nigh a
universal practice to settle transactions arising from the
world's commerce by drafts on London.

Canadian banks, through the purchase of drafts against
shipments of Canadian exporters, accumulated large credits in
the London market. They were thus in a position, through
their agencies in the United States, to sell to American im-
porters from Great Britain drafts on London and in this man-
ner to transfer to the United States the London credits, which
in turn were then available to settle the balances due in the
United States by Canadian merchants and manufacturers.

Similar operations from all over the world centered finally
in London, mutually cancelling each other, small resulting
balances being settled by shipments of gold from or to Lon-
don as the exigencies of trade required. '

Unfortunately this normal course of trade has been upset
by the resort of nearly every country to the excessive use of
paper money and of other credit instruments which have
grown to be of great volume and by the prohibition of or by
restriction upon the export of gold. These paper currencies
are valueless to pay debts in foreign countries. Such debts

THE DOMINION OF CANADA [ I05

must be settled with commodities or in a currency having a
commodity value. For most countries this currency is gold.
When the purchases and sales of merchandise — including the
invisible exports and imports already illustrated — do not bal-
ance, then there are only two methods of settlement possible.
Either the debtor country must send to the creditor country
gold coin or bullion, or the creditor country must be willing to
await payment until the debtor country can produce and send
forward goods which the creditor country is willing to accept
in payment and in the meantime individual debtors who must
make settlements must purchase gold for remittance at what-
ever premium may be demanded or borrow from their credi-
tors on the best terms which they are willing to grant. As a
practical matter, settlements are made through the banks and
the premium paid by the debtor for drafts represents the cost
to the bankers of effecting such arrangements and their mod-
erate profits in connection with the transactions. Normally
this premium is small, just enough to cover the cost of ship-
ping gold plus a fractional profit, but now a premium must be
paid for gold which must be added to the shipping charges,
while the prevailing rates of interest add largely to the cost
of drafts. Thus the fluctuations in the cost of drafts under
these abnormal conditions, instead of being nominal, become
a serious factor in settling international balances.

Prior to the war and until March, 1918, the difference be-
tween the high and low rates of Canadian-United States
exchange was usually not more than one per cent, above or
below par. That is to say, when Canada was exporting her
crops the balance of exchange was in her favor and drafts on
New York were at a discount — that is, the exchange was
against New York. On the other hand, in the Spring and
Summerif wh^n Cj^pada had large payments ti5>. xsy?!^^ 'a^x

I06 ] BANKERS TRUST COMPANY

balance in the United States, drafts on New York were at
a premium because they had to be covered by remittances
of goldy or, what amounted to the same thing, by the re-
duction of credit balances held in reserve in New York for
just such contingencies.

Exchange Conditions During the War

Unsettled political conditions in Europe subsequent to the
news of Austria's peremptory ultimatum to Serbia on July 23,
1914, followed by the startling news on the 28th that Austria-
Hungary had declared war on Serbia, led to tight money mar-
kets throughout the world and to weak stock market condi-
tions. Foreign bourses were in a state of panic. London and
New York were the only important open markets. They
were flooded with international securities. Great quantities
of American securities thrown upon the New York market
caused a rise in exchange to JS4.94 prior to August, and to a
demand for large gold exports. The credit paralysis occurring
in London and on the continent following the general declara-
tion of war between the ist and 4th of August, 1914, threw an
added strain on the New York market and, as they had no
available credits abroad, foreign exchange houses were unable
to draw. At the same time there was a very active demand by
American tourists for funds to replace those which had been
tied up. The purchases of people making such remittances
to their relatives and friends led to small transactions as high
as $*] to the pound for cable transfers. Practically for the
time being there was no exchange market, although there
were nominal quotations for cable transfers at $6.25 to J56.75.

All th^ banking centers in the world were endeavoring to
obtain sterling exchange and seeking to convert their credits
into sterling. The only place in the world where moratoria

THE DOMINION OF CANADA [ IO7

had not been declared was in the United States; consequently
other countries were trying to use their credits in the United
States to pay London. On account of the moratoria New
York could not use her offsetting credits so that she was called
upon to pay her own liabilities, but she was not in a position
to collect from her creditors. For a brief period New York
bankers were staggered by the situation, but, realizing that
the credit standing of New York depended upon its ability
to successfully cope with the situation, a bankers committee
was organized and a gold fund of $100 million was mobilized
to be used in remedying the exchange situation. As a result,
by the end of December, 1914, exchange became normal and
then as the demands of the warring countries for all sorts of
supplies from the United States became insistent, the ex-
change turned in favor of New York, and by July, 1915, had
reached $4.77, the lowest point ever known up to that time.

In July, 1915, the British Treasury took an important
step with a view to helping the exchange situation by instruct-
ing the Bank of England to purchase American dollar securi-
ties in London and transmit them to New York for sale; these
operations were continued until the close of the year, at which
time securities amounting to the nominal amount of $233
million had been purchased. In the meantime the exchange
fluctuated between $4.77 and $4.51 but with an upward ten-
dency from the end of October.

In December, 191 5, a scheme was launched for the mobil-
ization of the foreign investment holdings of the British peo-
ple on a large scale and the use of such holdings to stabilize
the American exchanges and to create credits in America
against which purchases of munitions and other necessary
supplies could be financed. The holders of such securities
were asked to sell them or lend them to tVv^Tt^^SMr^ ^^"t ^-^^

I08 ] BANKERS TRUST COMPANY

in America or for use as collateral for issues of dollar bonds
to be sold in the United States. The owners of the securities
used as collateral received a certificate entitling them to the
interest which the loaned certificates yielded plus a payment
at the rate of one-half per cent, per annum. The response to
this request was spontaneous and resulted by the endof 1916
in the acquisition by the British Treasury of American stocks
and bonds of the par value of $2,259 million. The entrance
of the United States into the field in April, 19179 as an active
participant in the conflict put an end to further important
financing of this kind, as from that time on the United States
government made direct advances to Great Britain which in
the end aggregated $4,277 millions. The result of the efforts
to stabilize exchange against the mobilization of American
securities or against the direct loans by the United States gov-
ernment was that New York exchange was maintained at
practically a uniform rate of $4.76 7-16 until March 21, 1919,
when the control was removed.

When the London-New York exchange rates broke in
April, 1919, the Montreal-New York rates followed suit. The
premium on American drafts in Canadian cities which had
risen to two percent, during 1918 became three per cent, in the
Spring of 1919; four per cent, in the early Autumn; by No-
vember, six per cent.; in December, 11 per cent.; while in
February, 1920, it reached ijyi per cent., and now (August,
1920) is about 12 per cent. This premium measures the in-
ducement which the Canadian merchant is obliged to make to
anyone who will provide funds with which to enable him to
meet his obligations in this country. This, then, for the Cana-
dian is a favorable market in which to sell securities or goods,
because by so doing he can realize a premium, at the August
rate twelve dollars on each $100, above the selling price of the

THE DOMINION OF CANADA [ I09

goods by disposing of his draft on New York to someone who
has a payment to make in the United States. Conversely
the Canadian purchaser of goods or securities in the American
market is penalized by the discount on Canadian dollars, say in
August, 1920, about 12 per cent., because he must pay one
hundred and twelve dollars Canadian money in order to meet
a debt of one hundred dollars in American money. Thus the
prices of all commodities which Canadians buy in the United
States are raised, although the return for those sold here is
correspondingly increased to the extent of the premium on
New York exchange at the time of purchase or sale. We have
seen how much the Canadians depend on us for coal and raw
materials; therefore we can appreciate why this state of af-
fairs has stimulated the "Made in Canada" movement. In
the end, though, it largely harks back to the dislocation of
the London-New York exchange. Although there are factors
which are not in common, yet when the London-New York
exchange is corrected the Montreal-New York exchange
should gravitate to a normal status.

Trade Balance igi^-igig
Allowing for Invisible Factors

It may now be of interest to summarize the data given
in the preceding tables.

BALANCE OF TRADE IN FAVOR OF OR AGAINST CANADA

For six years^i9i4-i9i9 inclusive

(In millions of dollars)

With With With With

United United Other All

Kingdom States Countries Countries

Visible Cr. 2,794 I^r« i»56o Cr. 579 Cr. 1,813

Invisible .... Dr. 1,290 Cr. 480 Dr. 810

Total .... Cr. 1,504 Dr. 1,080 Ct. ^n^ Cx. v^«^

^m^^^K^^mamm ^SS^SISSSSS mtmmm^^^^m^

NoTB:—Cr,^favor oi CaaadAi Dr.-- against Canadeu

I lO ] BANKERS TRUST COMPANY

We thus see that for the period of the war and since, after
making allowance for net invisible imports calling for pay-
ments amounting to about $8io million, Canada has a net
credit of about $1,003 million, or say $167 million a year.
Unfortunately we are unable to obtain the statistics of the
imports and exports of gold for the period. By combining
the Canadian and United States statistics we find that the
net exports of gold to the United States amounted to $235
million which, with the net invisible exports which brought
in $480 million, cancelled about half of the debit balance due
to the United States. The resultant credit balance for the
entire trade of the country for the period of six years under
review is thus found to be $1,238 million, i.e., credit balance
as per table, $1,003 million, plus $235 million net gold exports
to the United Statesf.

Unbalanced Trade with Great Britain
Controlling Factor

The unbalanced trade between Great Britain and the
United States is the controlling influence in the present dis-
count on the Canadian dollar at New York. It is essential
to keep in mind that if sterling is at a discount in New York
it is at a premium at every other important center in Europe.
If London were in a position to transfer its continental credits
to New York, sterling would be quickly reestablished to a
normal basis in that market, and if Canadian credits could be
converted to exchange at New York, Canadian indebtedness
at that center could be easily supported and the Canadian
dollar would be worth its face value. For reasons of political
and economic policy Great Britain has been selling to a con-

tPossibly Canada should not be given credit for the entire laas million net sold
exported to the United States as a certain amount of such exports simply may have
been made through the United States for British account.

THE DOMINION OF CANADA

[III

siderable extent to continental Europe on credit rather than
for cashy just as Canada has been selling to Great Britain.
Owing to the exigencies of the exchange situation, Canada
is now carrying abroad larger balances than in the past. On
the other hand, Americans are carrying unusually large
balances in Canada which have been gradually accumulating
there in the hope that the discount on Canadian dollars would
lessen so that funds might be transferred from Montreal
to New York without too great a loss of exchange. The
following tables vizualize the changes which have taken place
since February, 1918, in the relative status of amounts due
to or from the chartered banks by British and foreign clients.

BANKS ASSETS HELD ABROAD
(In dollars 00,000 omitted)

February, 1918
February, 1919
February, 1920
June, 1920

Call

and

Short

Loans,

Foreign

160,2

155.9
184,4

219,2

Other

Loans,

Foreign

109,6
130,6
180,7

184.3

Due

from

Banks,

United

Kingdom

ii,i

9,2

16,2

15,0

Due

from

Banla,

Foreign

45.9
42,6

49,7
69,5

Totel

326,8

338,3
431,0
488.0

Increase

--11,5
--92,7
+^7.0

BANKS LIABILITIES TO BRITISH and FOREIGN DEPOSITORS

Deposits

Else-

Due to

where

Banks

Total

Increase

than in

U.K.

Foreign

Canada t

February, 191 8 . .

183,2

24,9

210,8

February, 19 19 . .

200,5

3,4

23,9

227,8

--17,0

February, 1920 . .

277,4

40,7

325,8

- -98,0

June, 1920 . .

360,3

6,8

37,1

404,2

+78.4

fThese are deposits made in branches witliout Canada. Deposits made in Canada
by citizens of the United States or other foreigners are included in the total deposits in
Canada (See Table on page 50), therefore it is not possible to distinguish the deposits
left by people of the United States owing to the dislocation of ezchans^ ^cs<««?i«<.V\.
is a fact that there is a considerable amount (rf United St&t«AmoiEyKv'^«Ld^>&.^VDLC;«a&na.

for this reason.

Chapter XIII
The Railways

ALL settled parts of Canada can be conveniently reached
by railway and steamship lines. At the end of March,
1920, Canada had 39,899 miles of completed steam railways,
in addition to which there were 7,041 miles of railroad in the
United States controlled and operated by Canadian com-
panies, making a total of 46,940 miles of road owned by Cana-
dian interests, of which 22,354 miles were owned or controlled
by the dominion government, 19,772 miles by the Canadian
Pacific Railway Company, while of the remaining mileage
2,063 miles were owned by small independent lines, 2,284
miles by American companies having extensions in Canada
and 328 miles by the Ontario government.

Government Ownership

In Canada the government has owned a railway from
practically the earliest days of railway construction, but it
was not until after the great war was entered upon that
government ownership became an important factor in the
dominion railroad situation. Prior to that time the gov-
ernment had entered the railway situation chiefly by giving
subsidies and land grants, by direct loans or by guaranteeing
the securities issued by the railway companies. On June 30,
1916, the dominion government owned 3,599 miles of rail-
road or not quite ten per cent, of the total railroad mileage.
Of the remaining mileage about 13,000 miles were owned and
operated by the Canadian Pacific, a strong, prosperous cor-
poration, and about 3>50o miles by the Grand Trunk Rail-
112]

THE DOMINION OF CAKADA [ II3

way, also a self-supporting private corporation. Nearly 10,000
miles were owned by the Canadian Northern and about
2,000 miles by the Grand Trunk Pacific. It was the finan-
cial difficulties of the two companies last named which led
to the extension of government railway ownership.

Railway History

The railway history of Canada has gone through three
distinct stages. The Grand Trunk Railway, which dates its
charter from 1851, came into existence almost entirely as the
result of the investment of private capital, largely British.

In 1880 the Canadian Pacific Railway was organized for
the purpose of completing a transcontinental line the con-
struction of which had theretofore been undertaken by the
dominion government and upon which the government up
to that time had expended upward of {$37 million. The
Canadian Pacific received much financial assistance from
public funds both from the dominion and from the prov-
inces and it also received large land grants. Public assistance
either directly or indirectly given to the company is estimated
to have been more than {$228,500,000. In addition it has
raised hundreds of millions of new capital from private
sources largely from the sale of ordinary (common) stock
which now has a book value of around j$i2o a share. It has
become a great and successful corporation operating a system
of nearly 20,000 miles of road.

The third period of railroad development was that
which had to do with the construction of the lines heretofore
owned by the Canadian Northern and the Grand Trunk
Pacific Railway Companies. These were nominally private
companies, but the construction of their lines was made
possible by dominion and provincial subsidies atvd ^g^-^x'^x^-

1 14 ] BANKERS TRUST COMPANY

tees. Their common stock was chiefly issued for services
to promoters and contractors and represented no actual
cash investment and the roads never were profitable under-
takingSy although up to 1914 Canadian Northern was able
to meet its obligations from its own resources. While the
aid rendered to the Canadian Northern was largely in the form
of subsidies and guarantees, a large amount of direct aid was
given to the Grand Trunk Pacific, but the financial scheme
for this undertaking mainly relied on guarantees, first, by
the government, and second, by the Grand Trunk Railway
Company.

The Grand Trunk Railway is strongly entrenched in the
eastern part of Canada and has many United States connec-
tions. Its western terminus is on Lake Huron. In 1903 it
was planned to extend the Grand Trunk System right across
the continent to Prince Rupert and eastwardly to Quebec.
The portion of the line west of Winnipeg was to be built by
the Grand Trunk Pacific Company with large government
assistance, while the line east of Winnipeg was to be built by
the government and leased to the Grand Trunk, the Grand
Trunk Railway proper holding the entire share capital of the
Grand Trunk Pacific.

The Canadian Northern System was started as a local line
in Manitoba in 1896 and built up in the prairie provinces a
system which by 1906 comprised more than 2,400 miles. The
Canadian Northern had to depend for westbound rail traffic
on what the companies in the east handed to it. On the traffic
which it had in the west it lost the long haul to the east. It
was natural, therefore, that the company should reach out to
the east. It was equally natural that the Grand Trunk Com-
pany should reach out to the west. There was an opportunity
here for cooperation between these two companies which,

THE DOMINION OF CANADA [ II5

^ ^

however, was not availed of, with the result that by 1916
Canada had three transcontinental systems, the Canadian
Pacific, the Canadian Northern and its connections, and the
Grand Trunk-Government System. Under the war conditions
existing the new lines were unprofitable and there was immi-
nent danger that the private investors in these enterprises
would suffer great loss through the inability of the com-
panies to meet their charges. In this emergency the domin-
ion government stepped in and took over these new lines.
As the object of the government in taking over the railways
was to protect the holders of the bonds, they naturally took
them over on the basis of their bonded indebtedness. No
effort was made to protect the holders of common stock.
Such holders got from the government only the value of the
road which was in excess of the bond issue. That value and
that surplus was determined by arbitration in the case of the
Canadian Northern and was placed at $\o million. The
government had previously acquired possession of 400,000
shares of the capital stock in consideration of guaranteeing
certain bonds of the company, so that the $io million went
to the holders of the 600,000 remaining shares. In December
of 1918 the Canadian government owned lines were merged
with the Canadian Northern for unified control and opera-
tion. The year ending December 31, 1919, was therefore the
first complete year of operation of this greatly enlarged gov-
ernment system of roads.

As the Grand Trunk Railway Company had declined to
carry out its agreement to operate the eastern section of the
Grand Trunk Pacific and, in March, 1919, also notified the
government that it could not continue the operation of the
Grand Trunk Pacific, the government declined to relieve the
Grand Trunk of its obligations in regard to the Gt'a:cAT\»5^

1 16 ] BANKERS TRUST COMPANY

Pacific unless the Grand Trunk lines were included in the
national system. This was arranged for in 1919. The
amount to be paid for the capital stock is to be fixed by arbi-
tration. Pending this the Grand Trunk will be operated by
a committee of management of five, two to be appointed by
the government, two by the Grand Trunk and the fifth to be
chosen by the four so appointed. On completion of the trans-
action the Grand Trunk and allied lines will be merged with
the Canadian National System. When this is accomplished
the Canadian National System will own upward of 20,000
miles of road or more than half of the entire Canadian railway
mileage. The greater part of the other half will be owned by
the Canadian Pacific and allied lines.

The following tables, for which we are indebted to the
Canadian Department of Railways and Canals, give a com-
plete statement of the railway mileage of Canada and also a
statement of the rolling stock on December 31, I9I9> and the
earnings for the calendar year 1919:

CANADIAN RAILROAD STATISTICS

MILEAGE
December 31, 1919

MILES OF ROAD;— Miles

Canadian National System I3»727

Including —

Miles

Canadian Northern 9A79

Intercolonial i>592

Prince Edward Island 278

National Transcontinental 2,002

Branch lines 376

13.727

THE DOMINION OF CANADA [ II7

MILES OF ROAD:— Continued

To which will shortly be added the Grand
Trunk System, including —

Miles

Grand Trunk Railway 3,578

Grand Trunk Pacific ii794

Grand Trunk Pacific branch lines it036

Central Vermont 125

St. Clair Tunnel i

6,534 6,534

Canadian National System 20,261

Canadian Pacific and allied lines 14,824

Small independent lines 2,063

American lines and extensions in Canada 2,284

Ontario Government 328

Industrial roads 139

Canadian Railroad Mileage 39i899

In addition the Canadian National System
operates following mileage in U. S.: —

Grand Trunk 1,868

Canadian Northern 225

2,093

Making Canadian National System complete mileage .... 22,354

The Canadian Pacific also operates 4,948 miles in U. S.

Making total Canadian Pacific System mileage 19,772

MILES OF TRACK:—

1st main 39,899

2nd main 2,543

Yards and sidings 9,i77

Total track 5i^\6^<^

1 18 ] BANKERS TRUST COMPANY

ROLLING STOCK (All Lines):—

Freight Cars: No.

Box Cars 153,520

Flat cars 24,768

Stock cars 9*189

Coal cars 18,375

Tank cars 419

Refrigerator cars 6,022

Other cars 4»965

Total Freight Cars 217,258

Cars in Company Service:

Officers and Pay 154

Gravel 5,298

Derrick 241

Caboose 3,220

Other 8,840

Total 17,753

Passenger Cars:

First Class 2,172

Second Class 618

Combination 396

Emigrant 701

Dining 203

Parlor 164

Sleeping 550

Baggage, Express and Postal ... 1,513

Other cars in passenger service . . 195

Totel 6,512

Locomotives:

xPassenger i,457

Freight 3,610

Switching 812

Total 5,879

Note: x Includes 3 electric locomotives.

Apjgr^te

Capacity

tons.

5.255. 12 1

817,847

272,590

772,800

14.340
180,800

185.797
7,499.295

THE DOMINION OF CANADA [119

OPERATING RESULTS 1919

Calendar Year

Canadian National System

Operating Operating

Revenue Expenses

Canadian Northern $531562,177.57 $60,034,023.92

Canadian Government 40,179,380.93 47,728,205.73

Canadian National $93»74i>558 .50 $107,762,229.65

Net operating deficit 13,943,660.13

Fixed charges not provided for 19,969,710.36

Total net deficit $33,913,370 49

Grand Trunk Pacific

The loss on the operation by the Government of the Grand

Trunk Pacific was $5,555,5i8

Fixed charges amounted to 8,524,424

Net loss for 1919 $14,079,942

Increase over 1918 $3,53i,500

Total deficit for 1919 of the lines which will hereafter
compose the Canadian National Railway System . . . $47,988,312

Grand Trunk Railway

Calendar Years 1919 1918

Gross earnings $68,650,188 $61,504,394

Working expenses 61,455,444 53,362,606

Net earnings $7,194,744 $8,141,788

Rentals and hire of equipment 872,175 883,971

Interest and investments 2,781,145 2,005,629

Total net revenue receipts $10,848,064 $11,031,388

Interest and rents $9,498,909 $9,385,569

Estimated loss on lines in U. S. taken under
Federal control by U. S. Railroad Admin-
istration 1,343,605 1,637,071

$10,842,514 $11,022,640

Surplus 5,550 8,748

$10,848,064 $1 1,031,388

1 20 ] BANKERS TRUST COMPANY

Adding the balance of $233,795 at the credit of net revenue account
on the 31st December, 191 8, to the above surplus for the past year
$5»550» will make a total balance of $239,345, to be carried forward to
the net year's accounts.

The company again carried the largest traffic in its history, showing
an increase of $7,145,794 in the gross receipts, but this, unfortunately,
was more than absorbed by an increase of $8,092,833 in working expenses.

The results of operation of the Canadian Pacific Rail-
way were as follows:

Canadian Pacific

Calendar Years 1919 1918

Gross earnings $176,929,060 $i57,537f698

Working expenses 143,996,024 123,035,310

Net earnings $32,933,036 $34»502,388

Fixed charges 10,161,510 10,177,513

Surplus $22,771,526 $24,324,875

Pension Fund 500,000 500,000

Balance $22,271,526 $23,824,875

Preferred dividends .... 3,227,276 3,227,276

Balance $19,044,250 $20,403,621

Common dividends 18,200,000 18,200,000

Net surplus for year .... $844,250 $2,203,621

Special Income Account

Special income $9,049,342 $8,128,751

Dividends 7,800,000 7,800,000

Balance $1,249,342 $328,751

Previous balance 14,164,501 13,835,750

Special Income Account

Surplus $15,413,843 $14,164,501

Chapter XIV
Shipbuilding and Marine Activities

TN shipbuilding and matters relating to shipping generally
-^ Canada has made surprising strides since 1914. Compared
with what the United States has done during the same time,
her record may not seem to be very important; but when
compared with that of the countries of Europe, and with the
rest of the British empire, outside of the United Kingdom,
it is notable. Today, in tonnage, Canada stands eighth
among the nations and is adding to her register at a rate that
seems likely to give her sixth place by the end of 1920.

Shipbuilding for War

Little has been said of Canada's work in building vessels
for governments of the allied countries during the war
period. Taking into account the very slender proportions
of her steel shipbuilding industry in 1914, Canada's record in
this respect must be considered extremely creditable. It is
practically impossible to get the exact figures of vessels thus
built; but it is safe to say that about 900 of one kind or an-
other were turned out for other countries between the Fall of
1914 and that of 1919. The following list, though incomplete,
will give a good idea of what was done.

Vessels built Total

Submarines — Great Britain 20; Russia 12; Italy 6 . . . 38

Armed trawlers — Great Britain 60; France 6 66

Armed drifters — Great Britain 100 100

Coastal motor boats— Great Britain 550; France 36 . . 586

Steel freighters — Great Britain 24 24

Wooden ships — ^France 50 • 50

Total ae^fit

122 ] BANKERS TRUST COMPANY

Vessels were also built for Norway and Belgium, so that
900 seems to be quite within the mark.

Fifty years ago, in the palmy days of the wooden ship,
Canada possessed a considerable shipbuilding industry. But
with the advent of the steel vessel, a decline set in, so that by
1914, the industry was at rather a low ebb. True, the first
steps had been taken in the building of steel vessels, but at
the outbreak of hostilities, Canada had but two modern steel
shipbuilding plants. Today she has seventeen, which are
said to be turning out just as good a class of work as is to be
found in any country. Some 20,000 men are now employed
in the shipbuilding yards of the dominion.

The war gave Canada her great opportunity in shipbuild-
ing. It revived the building of wooden ships and resulted in
the establishment on a permanent basis of the business of
building steel vessels. It has also provided Canada with a
mercantile marine in a sense such as did not exist before the
outbreak of the war.

As soon as it became evident that the war would be lengthy,
Canadian shipyards began to experience a strong demand for
vessels. However, it was not until 1917, when the Imperial
Munitions Board began to place orders in Canada for ships,
that the industry started to make the headway that has char-
acterized it during the last three years. Its programme called
for 90 vessels, 46 wooden and 44 steel, at a total cost of ap-
proximately $70 million.

The awarding of these contracts imparted a strong im-
petus to the industry. Almost all sections of the dominion
benefited, contracts being awarded to yards on both the
Atlantic and Pacific coasts, on the St. Lawrence and the
Great Lakes. These contracts kept some of the yards em-
ployed until well on into 191 9.

THE DOMINION OF CANADA [ 1 23

Shipbuilding for Peace

But with the completing of the Imperial Munition Board's
orders empty ways seemed to be in prospect with the conse-
quent throwing of thousands of men out of employment, to
say nothing ot the loss that would haVe resulted to the cap-
ital thus invested. The desire to prevent this was one of the
strong considerations that induced the government to em-
bark on its shipbuilding programme. Besides, the great de-
mand for tonnage made the earning power of ships so high
that, as a business venture, the departure seemed to be an
assured success.

The desire that Canada should not only be a builder, but
should also own and control a large amount of tonnage placed
on Canadian register, was another strong reason that led to
the adoption of the government's building programme. The
dominion had been well-nigh stripped of shipping through the
action of the British Shipping Board in requisitioning tonnage
from Canadian routes, action having been carried to such an
extent that Canadian business was severely handicapped.
Therefore it was argued that, if Canada was to continue to
advance the money for the building of ships, it should be done
under conditions that would ensure the placing of these ships
on Canadian register, so that the dominion might, within a
comparatively short rime, be represented on the high seas by
a large and creditable marine. This view ultimately pre-
vailed.

The first government contracts were awarded in the early
part of 191 8. The administration necessarily had to feel its
way; but from the first it was decided that its programme
should be of a substantial nature. Up to the end of 1919 con-
tracts for 53 cargo vessels with a tonrv2ig& ol '>^^o^<^Ky:> ^^-^V

124]

BANKERS TRUST COMPANY

weight had been awarded. This represents an outlay when
the contracts are completed of about $70 million. By De-
cember 31, 1919, 26 vessels had been delivered, 22 of which
were in commission.

As already stated, there are seventeen shipyards on the
Atlantic and Pacific coasts, St. Lawrence and the Great Lakes,
employing more than 20,000 men. There is, of course, a large
number of men employed in allied industries. The completion
of the government contracts will give work for several months
in the yards. Parliament at its last session authorized the
government to guarantee the notes of foreign purchasers of
vessels made in Canadian yards up to 50 per cent, of the value
of the same, the aggregate value of the notes guaranteed not
to exceed $25 million. This action is said to have been
prompted by the desire of French shipping interests to place
orders for considerable tonnage. Should such orders mate-
rialize, the yards would unquestionably be assured of a good
tonnage for many months to come.

NUMBER AND TONNAGE OF VESSELS BUILT

AND REGISTERED IN CANADA DURING

THE CALENDAR YEARS 1914-1919

Sail

Steam

Total

Year

Gross

Net

Gross

Net

Gross

Net

No.

Tonnage

No.

Tonnage

No.

Tonnage

1914

126

24,287

22,590

201

32,423

20,756

327

56,710

43.346

ipis

13.926

12,581

148

10,372

6,827

244

24.298

18.808

1916

IIS

20,335

18,634

126

14.537

9,669

241

34.872

28,303

1917

lOS

23,757

21,180

138

35,310

25,096

243

59.067

46,276

1918

219

52,269

48,076

178

91,724

56,535

397

143.993

104.644

I9I9

198

55.733

49,923

211

123,897

77,583

409

179.630

127.506

Note: — In addition to the above there were 80 vessels of 162,783 Gross and 99,340
Net Tons built in Canada during 1919 and exix>rted without registry, which makes a
Grand Total for 19x9 of 489 vessels of 342.413 Gross and 226,846 Net Tons.

THE DOMINION OF CANADA • [ I25

The Canadian Mercantile Marine

The vessels constructed for the government constitute
the Canadian government mercantile marine owned by the
government and operated by the management of the Cana-
dian national railways. The placing of these ships in com-
mission has already resulted in opening up a number of new
trade routes, notably to the West Indies and Australia.

The facilities offered by the government-owned ships are
in addition to shipping facilities which have been offered for
years by steamship lines privately owned and operated and
by the great liners and fleet of freighters owned by the Cana-
dian Pacific Railway Company. Ships of these older lines
have been plying for years between the ports on both sides
of the Atlantic and from the Pacific ports of the dominion to
Australia, China, Africa, and other points in the East. It is
understood that new lines are now being opened from Mon-
treal to Australia and many new ships are said to have been
placed on the older lines. Practically all the steamship lines
have their own agents in the Far East and are in a position
to see that prompt delivery is effected on all shipments and
that transshipment of cargo is handled with despatch.

The whole of Canada's foreign trade for a long time to
come cannot pass entirely through Canadian ports, as the
freight coming in does not equal the freight going out. If
they are to pay, ships must have cargo in both directions.
Therefore a large part of Canada's exports must go to United
States ports, especially as Canada's imports from the United
States are much heavier than her exports to our country. For
the six years from 191 5 to 1920 inclusive her imports from the
United States exceeded her exports thereto by $1,560 million.
To pay for this surplus, excess exports must be tsvaAfcXa <^^^x

126]

BANKERS TRUST COMPANY

countries. Logically a good part of the excess of outgoing
cargo over incoming finds its way to American ports for ship-
ment, as it is to these ports that more return cargoes come.

NUMBER AND TONNAGE OF CANADIAN
REGISTERED VESSELS

(oo omitted in tonnage columns)

Sail

Stbam

Total

Year

Dec. 31

Gross

Net

Gross

Net

Gross

Net

No.

Ton-

No.

Ton-

No.

Ton-

nage

1914

4.722

501,7

477,4

4.050

744.7

454.9

8,772

1.246,4

932,4

191 S

4.62s

491.4

465,8

4.132

753.7

463,4

8,757

1.245,1

929.3

1916

4.4S8

476,9

451,4

4.202

799.1

49I.I

8.660

1.276,1

942,5

1917

4.29S

473.8

448,2

4.264

853.9

523.2

8.559

1.327,8

971,4

1918

4.202

486,6

460,9

4.366

904.0

555,9

8,568

1.390,6

1,016,7

1919

4.131

SIS.6

486,4

4.442

982,7

6os,4

8,573

1.498.4

1.091,8

Lake and River Traffic

An examination of the map of Canada visualizes the
extraordinary facilities which the people of the dominion
enjoy for water communication within their own borders.
The maritime provinces are almost surrounded by water and
their coasts are indented with a great number of fine harbors.
The St. Lawrence River and the Great Lakes give communi-
cation in summer between the eastern and central provinces,
while the west can be reached by way of Hudson Strait and the
vast interior of Hudson Bay, although the navigation of Hud-
son Strait is obstructed by ice for the greater part of the year.
There are great rivers and lakes in the west which afford
means of communication in summer. Navigation of the in-
terior waterways is obstructed in many places by waterfalls,

THE DOMINION OF CANADA [ I27

but short canals overcome this difficulty while, as we have
already seen, the waterfalls afford power for electric energy
which is productively used for light and power.

The waterways are extensively utilized for both freight
and passenger traffic. The Canadian Pacific Railway Com-
pany runs large passenger steamers on the Canadian lakes,
while other lines of steamers are maintained thereon and on .
the Great Lakes. Passenger steamers run daily on the St.
Lawrence and other rivers and there are steamers plying be-
tween Montreal, Quebec, Nova Scotia, New Brunswick, and
Prince Edward Island. The maritime provinces have local
steamship lines by which all the important seaports of these
provinces may be reached. There are steamer lines on the im-
portant New Brunswick rivers, while in the Prairie Provinces
in the west they ply on the Red River, Lake Winnipeg, and
the Saskatchewan River. There is a steamer service down the
great Mackenzie River to Fort MacPherson within a few
miles of the ocean. In British Columbia there are steamers
running on many of the navigable lakes and rivers in the in-
terior, while there are regular lines of steamers running from
Vancouver and Victoria to all important points along the
Pacific coast of Canada and the United States. There is also
an extensive coasting trade on the Atlantic side; also steamers
running from Canadian to American ports.

Canadds Navy

In the chapter on Canada's part in the great war, reference
has been made to the important services rendered during the
war by the dominion navy, and to the increase in personnel
from a very small organization at the beginning of the war to
an important organization at its close. So far as we are ad-
vised no definite naval programme has been, ^xt-acw^^^^'^ "^^

1 28 ] BANKERS TRUST COMPANY

future. Lord Jellicoe, who has just been appointed governor-
general of New Zealand, has recently completed a tour of the
dominions and colonies with a view to recommending a naval
programme for the empire which would provide for greater
cooperation on the part of the dominions than was offered
by them to the United Kingdom prior to 1914. Canada main-
tains a naval college which provides a three-year course for
cadets, who upon graduation have the opportunity of enter-
ing the Canadian royal navy. A certain small percentage of
the graduates is also admitted to the Imperial Navy. These
men are placed upon the same basis as graduates from the
Imperial Naval Colleges of Osborne and Dartmouth. At the
termination of hostilities the personnel of the Canadian royal
navy consisted of 700 officers and 4,768 men.

The vessels under the Department of Naval Service at
the close of the war comprised three depot and training ships,
two submarines, three auxiliary patrol vessels and a con-
siderable number of small vessels such as trawlers, armed
drifters, armed mine-sweepers, tugs and motor launches.

Chapter XV
The British Empire Overseas

THE British empire overseas comprises over fifty distinct
governments and is divided into the dominions, colonies
and dependencies. There are two classes of colonies, known,
respectively, as crown colonies and colonies possessing repre-
sentative institutions but not responsible government. The
dominions possess both representative institutions and respon-
sible government. In the crown colonies the crown has entire
control of legislation and the public officers are directly respon-
sible to the home government. In the colonies with represen-
tative government the crown has only a veto on legislation,
but still retains control of the public officers. In the domin-
ions the crown retains a veto upon legislation but has no
control of any public officer, except the governor-general, who
is appointed by the crown.

The Crown

The most potent bond of union between the constituent
parts of the British empire is that of loyalty to the crown.
The nature and quality of this allegiance it is hard to define.
It has unquestionably been strengthened by the events of the
past six years. From orientals, allegiance to the crown is al-
most a superstition, while from the people of the dominions it
proceeds fr'om an intelligent appreciation of the value of an
allegiance to a common head who stands for the unity of that
empire upon which it is their proud boast that the sun never
sets. This allegiance has carried the empire through many a
critical stage and it is believed will do so yet a%?iw.

130 ] BANKERS TRUST COMPANY

Governmental Relationship Between
Great Britain and the Dominions

There are four channels through which Great Britain ex-
ercises the slight and yet very real governmental relation-
ship still maintained with the dominions: The governor-
general, the power to veto legislation, the control of foreign
relations and the right of appeal from the dominion courts to
the Judicial Committee of the Privy Council of Great Britain.

The Governor-General

The governor-general is the connecting link between the
dominions and the United Kingdom. He has two functions.
He is an officer of the mother country appointed to guard her
interests and to exercise a great part of whatever control she
may still retain. He is also the chief magistrate of the do-
minion for its own internal government. In both cases he acts
as the representative of the crown. As Dr. Lowell says in his
book, "The Government of England/' "he acts in the former
capacity for the crown as titular sovereign of England or of
the empire; in the latter for the crown as titular sovereign of
the colony. According to this distinction it is commonly
said that in matters that affect other parts of the empire
or foreign countries he must use his own discretion, or seek
instructions from the secretary of state in England; while
in matters that affect only the internal affairs of the colony
he must follow the advice of his ministers there. Neither
branch of this statement is, however, perfectly accurate. * *
In spite of responsible government his position in regard to
matters purely internal, as well as those which concern the
rest of the world, is still a delicate one that may require
much sound judgment and tact. His chief usefulness lies.

THE DOMINION OF CANADA [ I3I

however, rather in his moral influence than in his legal author-
ity. Like the king his presence is important as a social and
ornamental symbol of the empire and, in fact, the growing
experience in self-government by reducing the occasions when
he is called upon to exercise his legal powers has made the
social attributes of greater consequence/' A Canadian author-
ity, Sir Joseph Pope, challenges this latter statement. In his
authoritative book, "The Federal Government" [of Canada],
he says: "The impression prevails in some quarters that
under the practical working of the Canadian constitutional
system the governor-general has ceased to be a living factor
in the government of the country; that the office, while retain-
ing its ceremonial attributes and social prestige, and valuable
as the link connecting Canada with the motherland, no longer
serves any useful functions that might not — to use a favorite
expression of the late Professor Goldwin Smith — be equally
well performed by a rubber stamp. This is a misapprehension.
The governor-general, while bound to take the advice of his
responsible ministers upon all questions appertaining to the
government of Canada, whether it is or is not in accordance
with his own opinion, possesses in a variety of ways oppor-
tunities for modifying that advice in which he may consider
its acceptance contrary to law or injurious to the public
interest. His elevated position as the king's representative,
his aloofness from the prejudices and passions of party strife;
and in many instances his wider knowledge and experience of
men and affairs, acquired by mingling in the larger sphere of
imperial statesmanship — all these considerations combine to
render his influence upon the policy of his ministers far from
negligible."

132 ] BANKERS TRUST COMPANY

The Veto Power of the Crown

The right to refuse assent to legislative enactments is one
which is not frequently exercised, yet it is used often enough
to make it an important attribute of the slight control
maintained by Great Britain over dominion affairs. How-
ever, the right of veto has been exercised in Canada on one
occasion only since the confederation of the dominion in 1867.
This was in 1873, when what was commonly known as the
"Oaths Biir* was disallowed as being vltra vires of the par-
liament of Canada.

On one occasion the consent of the governor-general of
Australia was withheld and a proposed act referred to Down-
ing Street. This was in connection with the Australian Navi-
gation Act of 1912. In this case the act was finally approved.
However, the delay gave time for reflection in regard to the
merits of the law so that it is not even yet being enforced in
its entirety.

Foreign Relations

Up to the time of the world war there is no doubt, as
Dr. Lowell says, that "as regards foreign relations the British
empire is treated as a single power and that power is England.
Diplomats are appointed, negotiations are conducted and
treaties are made on advice of the English ministers.'' How-
ever, the important contributions made in men and money
by the dominions toward the success of the world war has
led to their taking a position in regard to foreign affairs which
may modify in an important way the relations to be main-
tained in the future with foreign nations. By far the most
significant and far-reaching development in this regard was
the announcement made simultaneously on May 10, 1920,

THE DOMINION OF CANADA [ I33

In both the British and Canadian Houses of Commons that
arrangements had been completed whereby a diplomatic
representative of the Dominion of Canada would be sta-
tioned at Washington. The announcement said in part: "It
has been agreed that His Majesty, on the advice of his Cana-
dian ministers, shall appoint a minister plenipotentiary, who
will have charge of Canadian affairs and will at all times be
the ordinary channel of communication with the United
States government in matters of purely Canadian concern.
He will be accredited by His Majesty to the President with
the necessary powers for the purpose, acting upon instruc-
tions from and reporting direct to the Canadian govern-
ment. This new arrangement will not denote any departure
either on the part of the British government or of the
Canadian government from the principle of the diplomatic
unity of the British empire.

"The need for this important step has been fully realized
by both governments for some time. For a good many years
there has been direct communication between Ottawa and
Washington, but the constantly increasing importance of
Canadian interests in the United States has made it apparent
that, in addition, Canada should be represented there in
some distinctive manner. * * * In view of the peculiarly
close relations that have always existed between the people
of Canada and those of the United States, it is confidently
expected as well that this new step will have the very desir-
able result of maintaining and strengthening the friendly
relations and cooperation between the British empire and
the United States."

Other significant facts acknowledging the right of the
British dominions to have a voice in the direction of foreign
policy are their signatures to the treaties oC ^^?L^^^fe\Ts>»SaixR.^

134] BANKERS TRUST COMPANY

at Versailles in 19199 and their inclusion as voting members
of the League of Nations.

The Dominions Partner-Nations in the Empire

The people of the dominions have emerged from the war
with a greater desire than ever for national autonomy. While
proud of being a part of the British empire and willing, if
necessary, to devote blood and treasure to preserving its in-
tegrity, yet they insist that the dominions shall henceforth be
recognized not in any sen^e as colonies or possessions, but in
the words of Sir Robert Borden, in the fullest sense as "part-
ner-nations in the empire." It is important to weigh these
words carefully. It is clear that emphasis should be placed on
the word "partner." While the war has tied the dominions
closer than ever to Great Britain, still there is without doubt
a strong feeling that they should now enter into all the rights
and privileges and obligations of full partnership in regard to
national and international affairs. However, we may be sure
that in working out the terms of such a closer partnership, it
would not be the desire or intention either of Great Britain
or of the dominions that there should be any disturbance of
the present arrangements by which each dominion and Great
Britain is solely responsible for its respective budget.

The Dominions and National Defense

For a number of years now Great Britain has had no
responsibility for the internal defense of any one of the
dominions, each dominion having organized its own militia
for such purpose, but the burden of maintaining the imperial
navy has been borne almost entirely by Great Britain. In the
years just preceding the war, and especially during the war,

THE DOMINION OF CANADA [ I35

the dominions made some contributions to the naval strength
of the empire and it is quite possible that in future they may
be willing to assume larger obligations in this direction. In
fact, under Lord Jellicoe's guidance important developments
in this direction are now in process.

The Systems of Justice

The systems of justice throughout the empire have a close
resemblance to each other. The Judicial Committee of the
Privy Council of Great Britain, which sits in London and in
which the self-governing dominions and India are represented
constitutes a supreme court of appeal for the entire empire.
To this body are referred questions of law. It has no juris-
diction in criminal cases. However, the privilege of appeal
to the Judicial Committee of the Privy Council is a valuable
one, as it gives the people of the dominions the benefit of
the safeguarded jurisprudence of the mother country. If the
reader desires to pursue this question further he will be in-
terested in reading extracts from Dr. Lowell's "The Govern-
ment of England" and Sir Joseph Pope's "The Federal
Government" [of Canada], which will be found printed re-
spectively on pages 159 and 168.

The Five Dominions

These are five political divisions of the British empire
which possess the status of dominion. They are the Dominion
of Canada, the Commonwealth of Australia, the Dominion of
New Zealand, the Union of South Africa and the Dominion of
Newfoundland.

Within their boundaries reside substantially all of the
white population of the empire living outside oC tiv^ ^ixixs.^

136] BANKERS TRUST COMPANY

Kingdom. King George reigns over more than 440 million
human beings of whose number 62 million, less than 15 per
cent., are of the white race. The remainder are of the brown,
yellow, red and black races — natives of the countries where
the British flag has been planted since the days of Queen
Elizabeth by the merchant adventurers and armies of the
kingdom.

Canada and the Empire

Canada is the largest, most thickly populated and most
fully developed of the dominions.

In shaping the fiscal policy of the empire, Canada* has
borne an important part. She initiated the tariff preference
in favor of Great Britain, subsequently followed by other
dominions, and this policy led in turn to the denunciation
by Great Britain of several important commercial treaties
then in force, including the then treaty with Germany.
Political capacity of a high order has been visible in the evolu-
tion of government institutions, in the settlement of racial
and religious problems and in the development of the place
the country now holds in the constitutional system of the
empire.

Chapter XVI
The Government of Canada

THE Dominion of Canada as now constituted came under
British power at various times, some portions by settle-
ment and others by conquest or cession. Nova Scotia was
occupied in 1627. The Hudson Bay Company's charter con-
ferring rights for the territory to the east and west of the bay
was granted in 1670. The portion which now constitutes the
Provinces of Quebec and Ontario, along with New Brunswick
and Prince Edward Island, was ceded to Great Britain by
France in 1763, while Vancouver Island was acknowledged
to be British in 1846, and British Columbia was occupied
in 1858.

British North America Act

The Dominion of Canada was organized July i, 1867,
under the terms of the British North America Act which
became a law on March 29 of that year. The dominion was
then composed of upper and lower Canada, now known as
Quebec and Ontario, of Nova Scotia and of New Brunswick.
The act provided for the admission of British Columbia,
Prince Edward Island, the Northwest Territories and New-
foundland. The Northwest Territories were subsequently
divided, the province of Manitoba being created and admitted
into Confederation in 1870 and the provinces of Alberta and
Saskatchewan in 1905. All of these political divisons, except
Newfoundland, have availed themselves of the provisions of
the act, so that to-day the dominion is 21 coTv^^&et'aJOL^'^ ^

138 ] BANKERS TRUST COMPANY

nine provinces: Alberta, British Columbia, Manitoba, New
Brunswick, Nova Scotia, Ontario, Prince Edward Island,
Quebec and Saskatchewan. In addition to the provinces
there are the territories. These are the Yukon and the por-
tion of the Northwest Territories not heretofore incorporated
in one or other of the provinces. The territories are under the
control of the federal government. Reference to the map
printed on pages 64 and 65 will make clear the relative
locations of the several provinces.

Origin of Name ^^T>ominiorC^

The choice of a name for the new confederation was a mat-
ter of some difficulty. One suggestion was that the selection
be made by Her Majesty Queen Victoria. No one seems to
know how the choice finally was made. The designation
"Kingdom of Canada" was preferred by many, but it is stated
that Lord Stanley (afterward Fifteenth Earl of Derby), then
secretary of state for foreign affairs of the United Kingdom,
objected on the ground that the name "Kingdom** might
wound the susceptibilities of the Americans. In the end the
term "Dominion" was selected and the inspiration for the
use of this term is said to have been found in the Book of
Zachariah, Chapter IX, verse 10, where the following phrase
is to be found; "Dominion shall be from sea even to sea and
from the river even to the ends of the earth"; a very apt
description of the extent of the vast territories then being
brought under the new government.

The Federal Government

The form of government is defined by the British North
America Act. Thus Canada and the United States alike have

THE DOMINION OF CANADA [ 1 39

written constitutions. However, there is a marked distinc-
tion between the two countries as to the manner in which the
states or provinces are related to the federal government.

The constitution of the United States enumerates the
powers of the federal government, thus leaving all powers of
government not taken over by the federal government to be
exercised by the state governments. On the contrary, the
British North America Act enumerates the powers of the
provincial governments, leaving all powers not so enumerated
to be exercised by the dominion government. In addition
to enumerating the subjects in regard to which the provincial
legislatures may exclusively make laws, the act also enumer-
ates a series of subjects with regard to which the dominion
parliament may legislate. However, the act specifically says
that this enumeration is made ''for greater certainty but
not so as to restrict the generality" of the legislative power
granted *'to make laws for the peace, order and good govern-
ment of Canada with regard to all matters not coming within
the class of subjects of this act assigned exclusively to the
legislatures of the provinces."

One marked difference between the government of the two
countries lies in the fact that the question as to what is a
constitutional exercise of power by the federal government or
by the state or provincial governments is decided in the case
of the United States by our supreme court, a body within
and of the nation, whereas any misunderstandings or disputes
of this character are decided for Canada by an outside
authority, for the judgments of the supreme court of Canada
may be appealed* for final adjudication to the Judicial Com-
mittee of the British Privy Council.

*See page 168 for detaila.

140 ] BANKERS TRUST COMPANY

The Cabinet System Prevails

A very important difference between the Canadian form
of government and that of the United States lies in the fact
that in the former country the cabinet form of government
prevails, while in the United States there can be no change
in the government until the fixed terms for which officials
and legislators are elected expire. The reader will bear in
mind that under the cabinet system of government in case
the policy of the ministry is not endorsed by the popular
branch of the legislature the ministers resign and parliament
is dissolved. An appeal is then taken to the people in the
form of a new election for the popular branch. Then, in
accordance with the will of the people as thus recorded, either
the old ministry returns to power or a new ministry is formed.

The Executive

The executive power of the government of the Dominion
of Canada as also the chief command of the naval and mili-
tary forces is vested in the king, represented by the governor-
general, whose term of office is usually five years.

The Cabinet

The governor-general is advised by a cabinet consisting
of a prime minister who usually holds the portfolio of secre-
tary of state for external affairs, the ministers of the depart-
ments of finance, justice, trade and commerce, militia and
defence, labour, railways and canals, interior, marine and
fisheries (which includes the department of the naval service),
customs and inland revenue, immigration and colonization,
agriculture, public works, mines, the secretary of state of
Canada, tlie president of the privy council, the postmaster

THE DOMINION OF CANADA [ I4I

general and one or more ministers without portfolio, ap-
pointed at the discretion of the prime minister. There is not
a fixed number of cabinet ministers. A minister frequently
holds more than one portfolio or heads more than one depart-
ment of government.

In practice the cabinet is formed by the leader of the
dominant political party in the Houses of Commons, who is
summoned by the governor-general for the purpose, and
empowered to form a cabinet, thereby assuming the functions
of prime minister. Cabinet ministers are members of either
the Senate or the House of Commons. When a member of the
House of Commons is appointed minister of a department of
government or to any cabinet office to which emolument is
attached, he must resign and seek reelection. In the case of a
member of the Senate this rule does not obtain as the Senate
is an appointed and not an elected body.

The government holds office as long as it has the confi-
dence of the popular branch of parliament.

Sir Joseph Pope in his book, "The Federal Government*'
[ of Canada ], from which we have already quoted, says: "No
more ingenious and effective scheme for the conduct of public
affairs has been devised by the wit of man than that known as
'Responsible Government,* under which the balance of the
old-time contending elements in the state is harmoniously
adjusted without doing violence to cherished convictions.

"The crown maintains unimpaired its ancient dignities and
splendor, and rests far more securely upon the affections of
the people than at any previous time in history; while the
controlling power of government has passed to the people's
representatives, in the House of Commons. As a constitu-
tional writer has well observed: *Such is the wonderful elas-
ticity and adaptability of our system of ^overMCkKox. ^-^x

142 ] BANKERS TRUST COMPANY

modern life has taken possession of the ancient form and has
not rent it. It has expanded with every stage of national
growth, for while the ancient prerogatives still exist, they
can be lawfully exercised only upon the advice and sanction
of a responsible minister — a minister and a ministry respon-
sible to the commons house of parliament/"

The Parliament

The legislative power is exercised by the parliament consist-
ing of two houses called respectively the Senate and the
House of Commons. The members of the Senate are nomi-
nated for life by summons of the governor-general under the
great seal of Canada^ There are at present 96 senators, of
whose number 24 are from the province of Ontario, 24 from
Quebec, 10 from Nova Scotia, 10 from New Brunswick, 4
from Prince Edward Island, 6 from Manitoba, 6 from British
Columbia, 6 from Alberta and 6 from Saskatchewan. The
total number may not exceed 104. Each senator must be at
least thirty years of age, a native or naturalized subject and
must reside in the province for which he is appointed and be
possessed of property, real or personal, of the value of $4,000
located within such province.

The House of Commons is elected by the people for five
years, unless sooner dissolved. At the present time there is
one representative for every 30,819 persons, the province of
Quebec always having 65 members, and the other provinces
proportionately according to their populations at each decen-
nial census. The Houses of Commons now consists of 235
members, 82 for Ontario, 65 for Quebec, 16 for Nova Scotia,

11 for New Brunswick, 15 for Manitoba, 13 for British
Columbia, 4 for Prince Edward Island, 16 for Saskatchewan,

1 2 for Alberta and i for the Yukon Territory.

THE DOMINION OF CANADA [ 1 43

All money bills must originate in the Commons and the
Senate may not even amend such bills from the lower house,
although it may reject them. The power of rejection is sel-
dom employed and although the Senate possesses equal rights
with the Commons in initiating legislation, other than that
pertaining to finance, the right is not as much exercised.

The Provincial Governments

The nine provinces each have a separate elected legisla-
tive assembly, with a lieutenant-governor as executive head
appointed by the governor-general on the advice of the prime
minister. In the provinces of Quebec and Nova Scotia, in
addition to the legislative assembly, there exists also a legis-
lative council, an appointed body possessing coordinated
powers of legislation with the assembly. The cabinet system
of government prevails in the provinces also.

The provinces have full powers. to regulate their own local
affairs and dispose of their revenues, provided they do not
interfere with the action of the policy of the central ad-
ministration. In the preceding paragraphs of this chapter,
under the caption "The Federal Government," we have al-
ready noted the interrelated powers of the federal and provin-
cial governments.

Chapter XVII
The Dominion Financial System

THE federal finances of the Dominion of Canada are con-
ducted on what is known as the budget principle. The
rules of the House of Commons with respect to the expendi-
ture of public money and the imposition of financial burdens
upon the people are strictly in conformity with English
practice. All the checks and guards on the different expendi-
tures developed by English practice as the result of experi-
ence for several centuries are in full force in Canada.

The underlying principle in regard to taxation is that
every opportunity must be given for free and frequent dis-
cussion so that parliament may not, by sudden and hasty
votes, incur any expenses or be induced to approve of meas-
ures which may entail unnecessary burdens upon the country.

Recommendation and Consent of the Crown

All financial legislation must be recommended by the
crown. The British North America Act, to which reference
has already been made, in its 54th section, expressly declares
that 'St shall not be lawful for the House of Commons to
adopt or pass any vote, resolution, address or bill for the
appropriation of any part of the public revenue or of any
tax or impost, to any purpose that has not been first recom-
mended by the message of the governor-general in the session
in which such vote, resolution, address or bill is proposed."
According to English usage the recommendation may be given
by any minister, but in Canada it is usually given by the

THE DOMINION OF CANADA [ I45

premier or the leader of the government in the House of
Commons.

In addition to the recommendation of the crown which
must precede every grant of money, it is necessary also that
the consent of the crown should be given to every bill. This
consent may be given either by special message or by a
verbal intimation from a minister, the last being the usual
procedure in such cases.

Money Resolutions — Acted on Only After Notice

Another check imposed upon the expenditure of public
money is the requirement under the rules of the House of
Commons that "if any motion be made in the House for any
public aid or charge upon the people, the consideration and
debate thereof may not be presently entered upon; but shall
be adjourned until such further day as the House shall think
fit to appoint; and then it shall be referred to a committee
of the whole House, before any resolution or vote? of the
house do pass thereon.''

The Budget — The Annual Estimates

Financial legislation is based upon estimates carefully
prepared in advance under the direction of the minister of
finance. The main estimates appear in a blue book, and
comprise, as far as possible, the proposed expenditures for
the public service for the next fiscal year, which commences
on the 1st of July and ends on the 30th of June following.
But, in addition to these, there is generally a supplementary
estimate of sums still required to meet certain expenditures
which properly fall within the current year ending on the
30th of June. It is also always necessary to brin^ dcwrx^

146 ] BANKERS TRUST COMPANY

before the close of the session, one or more supplementary
estimates for the coming year in order to provide for services
which had been forgotten in the main estimates>or in regard to
which a decision had not been reached when the latter was
made up. All these estimates are divided into votes or resolu-
tions, which appropriate specified sums for services specially
defined. They are most carefully arranged under separate
heads of expenditure, so as to give the fullest information
possible upon all matters contained therein. The blue book
is made up in several columns; one showing the amount, if
any, voted during the previous year; another, the amount
to be voted for the next year, another (when necessary) the
increase or decrease of expenditure for the same service.
Each resolution specifies; when necessary, every item on
which there is to be a particular expenditure. For instance,
under the head of avote forharborsfor a province there will be
a number of distinct items for each harbor for which money is
required.

The Committee of Supply

These estimates are considered by the House of Commons
in committee of supply, and include all the grants that
have to be annually voted by parliament. When the resolu-
tions are under consideration in committee, it is the duty
of each minister to explain every vote that appertains to
his own department, and in this way the House is able to
come to a correct conclusion as to its necessity.

Permanent Appropriations

Besides the grants voted in the estimates there are certain
payments which have not to be provided for annually, but

THE DOMINION OF CANADA [ I47

are defrayed out of the consolidated fund in conformity
with various statutes. These payments comprise: costs and
charges incident to the collection and management of the
revenue; interest of the public debt; salaries to the governor-
general, lieutenant-governors, judges, and so forth; loans;
grants to provinces under the Union Act; and all other
permanent payments. Whenever it is necessary to make
any changes with respect to these permanent grants, they
must be introduced in the shape of resolutions in committee
of the whole, and bills founded thereon. The votes in com-
mittee of supply are for the service of the fiscal year only.
Grants intended to continue for a series of years must • be
passed in the way just stated.

The Committee of Ways and Means

The committee of ways and means regulates the mode in
which the expenditures authorized by the committee of
supply are to be met. In other words, it provides the revenue
or income necessary to pay the expenses of the public service.
It is also in this committee that all propositions relating to
the tariflF and to the taxation of the country must be considered.

Parliamentary Procedure in Connection
with Financial Legislation

At the opening session of parliament immediately after
the speaker has communicated to the house the speech from
the throne, the leader of the government makes a formal
motion that "the speech of his excellency the governor-gen-
eral to both houses of parliament of the Dominion of Canada
be taken into consideration.** When the speech has been
duly considered and the address in answer formallY ^.^^^A^^s^-*

148 ] BANKERS TRUST COMPANY

the minister of finance next moves the formation of the
committees of supply and of ways and means. Before the
house goes actually into committee of supply the finance
minister will bring down the estimates by message from the
governor-general and when the message has been read in
English and French the minister will move ''that the said
message, together with the estimates accompanying the same,
be referred to the committee of supply."

In accordance with the English constitutional doctrine
that the redress of grievances is to be considered before the
granting of supplies, and in accordance with the immemorial
usage of the English parliament, this is the time when the
opposition party is given free rein to discuss all sorts of
matters in connection with which it is desired to obtain
information or in connection with which it is wished to make
political capital. It is then open to the opposition to move
an amendment against any portion of the government's
policy, censuring the ministers for what they have done or
left undone. Each time the minister moves the house into
committee of supply a fresh amendment may be moved
and as such amendments, if carried, constitute votes of want
of confidence, they may entail a resignation of the govern-
ment.

The Budget Speech

The budget is considered by the house in committee of
the whole upon recommendation of the minister of finance
that ''the speaker do now leave the chair for the house to go
into committee of ways and means," and, in his speech in
this connection, known as the budget speech, the minister
of finance makes a statement of the state of the finances
and presents his recommendations as to the manner in which

THE DOMINION OF CANADA [ I49

the revenue necessary to meet the proposed expenditures
shall be raised. At the conclusion of the budget speech the
minister of finance gives notice that he will move certain
resolutions necessary to give effect to his recommendations.

The Appropriations or Supply Bill

Previous to 1888 it was the custom to delay the con-
sideration of the estimates until the budget was ready, and
consequently in some years the supply was greatly delayed;
but in that year the more convenient practice was adopted
and has been followed ever since of going into committee of
supply as soon as possible after the commencement of the
session and making considerable progress therein before the
annual statement of the finance minister is made to parlia-
ment.

When all the estimates have passed through the com-
mittee of supply the minister of finance will move to go again
into committee of ways and means for the purpose of con-
sidering the usual formal resolution for granting certain
sums out of the consolidated revenue fund of Canada '* to-
wards making good the supply granted to His Majesty/'
These resolutions must be reported and agreed to formally
by the house before the bill' founded thereon can be in-
troduced.

Important Precedents

Certain facts in regard to procedure should be carefully
noted here. In the first place, all financial legislation must
by immemorial English usage originate in the House of Com-
mons. The House recognizes the responsibility of the execu-
tive for the finances as complete. The minister of Rtv^xvcft. \%

150 ] BANKERS TRUST COMPANY

made responsible for the estimates of expenditure. It is
not customary for the House to change any of these estimates;
in fact no resolution for the increase of expenditure or for
any new expenditure not included in the budget will be
considered by the House. In order to keep the executive
responsibility intact, the House gives the executive what it
asks for, but holds it to a strict accountability both for the
correctness of the accounts and for efficiency and accuracy
in the management of the services.

After the finance bill has been adopted by the Commons
it then goes to the Senate for the consideration of that body.
It is invariably the custom of the Senate to return the bill
unamended to the Commons.

A supply bill can only be presented for the assent of the
sovereign by the speaker of the House of Commons. This is
done at the close of the session in connection with the cere-
monies incident to proroguing parliament. The governor-
general then signifies, through the clerk' of the Senate, in
both the English and French languages the royal assent in
the following words: "In His Majesty's name, his excellency
the governor-general thanks his royal subjects, accepts their
benevolence and assents to this bill."

Note: — ^The foregoinp: chapter 4s based largely upon "Parliamen-
tary Procedure and Practice in the Dominion of Canada," by Sir John
George Bourinot; Edition of 1902, edited by Thomas D. Flmt.

For Reference

IS2]

BANKERS TRUST COMPANY

DOMINION FUNDED DEBT

March 31, 1920
For further details see numbered descriptive notes following the table

(000 omitted)

Date of Interest
Title of Loan Issue % Payable

Redeemable or
Pajrable

Outstanding
£ $

Patablb in London
z. Sterling Loan

a. Sterling Loan.

3. Sterling Loan
Can. Pac. Ry

4. Sterling Loan

5. Sterling Loan

Z884 3H June & Dec. After June z. 1909 4,822^ 33.467

On June z, Z934
z888
to

Z894 3 Jan. & July On July z, Z938 7.66z=s 37*37X

z888 3H Jan. & July On July z. Z938 3.093= Z5.056

Z897 2H April & Oct. On Oct. z, Z947 z.0O4= 4.888

Z908
to
Z9Z2 3H Jan. & July

6. Sterling Loan

After July z, Z930

On July z. Z950 28.z63= Z37.059

Z9I3
to

191S 4

April & Oct. After Oct. z. Z940

On Oct. z, Z960 Z9f300=s 93,927

7. Sterling Loan

1915 4H May & Nov. After May z. Z920

On May z. Z925 s*ooo=s 34>333

Payable in New York

8. War Loan . . . Z9Z5 5

9. Public Service

Loan Z9z6 5

Public Service

Loan Z9z6 5

Public Service

Loan Z916 5

zo. Gold Notes . . Z919 SH
Gold Bonds . . Z9Z9 sH

Feb. & Aug. On

April & Oct. On

Feb. & Aug. On

336.00Z

Aug. z. Z935

873

April z. Z92Z

25.000

April z, Z926

35.000

April z. Z93Z

35.000

Aug. Z, Z92Z

zs.ooo

Aug. z, Z929

60.000

Z50.873

THE DOMINION OF CANADA

[iS3

DOMINION FUNDED DEBT— Continued

March 31, 1920
For further details see numbered descriptive notes following the table

(000 omitted)

Date of
Title of Loan Issue

Payable in Canada

Sundry old loans

War Loans

11. First Nov/is

12. Second Sept.'T6

13. Third Mar.' 17

Interest
% Payable

Redeemable or Outstanding
Payable I

S June & Dec.
5 April & Oct.
5 Mar. & Sept.

14. Fourth(lst Victory) Nov. '17 sH June & Dec.

1$. Fifth (2d Victory) Nov.'iS sH May & Nov.
16. Sixth (3d Victory) Nov.'ig SH May & Nov.

tt
u

u
u

17. Debenture Stock On

18. War and Dom. of
Can. Savings Ctfs.

and Stamps

Dec. 1. 1925

Oct. 1, 1931

Mar. 1, 1937
Dec. 1, 1922
Dec. I, 1927
Dec. 1. 193S
Nov. I, 1931
Nov 1, 1933/
Nov z, X934I
Nov. 1 1934/
June 1, 1930
June I. 1921

Oct. Z. 1922

19. Bond Loan
ao. Bond Loan

Three years from

date of issue

sept..* 3H M..*Sept.j;^-|:P-;;»«)
Sept..6 4H June <. Dec. {^r S^'." li l^ll}

ax. Total Funded Debt.

See page 38 for full debt statement

205

43 845
54.399
92 .653

513.623

677.963

5^3.918

238

363

19.34a

10,366
2.000

65.207

2.(>03.S22

2.550 398

DESCRIPTIVE NOTES

X. Average issue price £91 is 8d. June. 1884.
Redeemable at par — 6 months' notice.

Sinking fund, cumulative, not less than H% P^r annum — ^purchases at or below
par but Cyovemment may invest in other securities if price is above par. Coupon
bonds and Stock (i.e.. Registered).

Dexuminations £100. £500. £1,000. Coupon bonds can be registered. Re^o.tj^'c^^
stock not convertible into coupon bonds. Transferred 1t«!& ^\ %\axDL^ ^^aici « '^^
feel. Listed London Stock Exchange.

154]

BANKERS TRUST COMPANY

a. Average Issue price £4 million. June. *88 £95 is; £397.731 in '91 and *93. £94
to £95; £2K million July. '92. £93 os 6d; £iH million '93 and '94. £97 9s 2d;
£1,524,559 for conversions. Coupon bonds and Stock.
Denominations, etc. same as No. i. Listed London Stock Exchange.

3. Issue price 95 in 1888. on security of unsold lands Canadian Pacific. Direct obli-
gation of Dominion since 1906. Coupon bonds and Stock.

Denominations, etc.. same as No. i. Listed London Stock Exchange.

4. Average issue price £91 los 5d. All registered stock. Transferred as No. z. Listed
London Stock Exchange.

5. Issued: £3 imllion, Feb.. '08. par.; £5 million, Oct..'o8. par; £6H million, July.'op.
98H; £4 million, Jan..'io. 99: £5 million. May, '10, 99H; £5 million. Feb.. '12. 98.
Sinking Fund, H% pei* annum, created June, 1909. All stock transfers as No. i.
Listed London Stock Exchange.

6. Issued: £3 million. Sept..'i3> 90; £4 million,«Dec..'z3. 97; £5 million, Mar.,'14
99; £5 million. June,'i4, 98 and £2,300,000 sold on market 1914-15. Sinking Fund
H% per annum. All stock transfers as No. i.

Listed London Stock Exchange.

7. Issued Mar.. '15. 99H. All bonds to bearer. Denominations £100. £500. £1.000.
Listed London Stock Exchange.

8. Issued in exchange for 5% Gold Notes which were sold in July.'is and matured
July, '16 and '17. Issue price of notes 100 and 99 H^ Bonds are payable in New
York City, in United States gold coin or in Montreal. Principal and interest
exempt from Dominion taxes, including income tax.

9. Issued Mar..'i6 at 99-56 for Series due '31. 97.13 for Series due '36, 94.94 for
Series due '31. Payable principal and interest at Agency Bank of Montreal, in
New York City, in United States gold coin. Exempt from all present and future
Dominion taxes, including income tax. Coupon and registered bonds. Denom-
inations: Coupon li.ooo; registered. Ii.ooo, and multiples; interchangeable.
Transfer agents: Agency Bank of Montreal. New York. Listed New York Stock
Exchange.

10. Issued July, '19: Notes at 99.^. Bonds at 97. Principal and interest payable
"in gold dollars " at Agency of Bank of Montreal in New York City, free of Domin-
ion taxes, "but this will not exempt from Canadian taxes payments made in dis-
charge oif the Notes or Bonds when benefically owned by persons residing or
ordinarily resident in Canada."

Notes in Couponform |i,ooo. Bonds in Coupon form lioo and |i,ooo, exchangeable
in amounts of li.ooo, or multiples, for fully registered bonds. Interchangeable.

11. War Lo\ns: — First issued at 97 H flat (96.37 and interest); second at 97JiJ flat
to (97.04 and interest) ; third at 96 flat (94-068 and interest) ; fourth at 100 flat (98.65

16. and interest); fifth at 100 and interest; sixth at 100 and interest.

Coupon and registered bonds. Interchangeable. Denominations: Coupon lioo,
I500, |i,ooo all issues; also I50 last three issues; registered. |i,ooo and I5.000
all issues; $500 last three issues; I50 and lioo Fourth and Fifth issues; also large
denominations of |io,ooo, etc., in all but First issue.

Tax Exemptions. First to Fifth issues, inclusive, exempt from Dominion taxes,
including income taxes. Sixth issue exempt from taxes, except income taxes.
Principal and Interest of all issues payable in principal Canadian cities; of
Third issue in New York also. Interest on registered bonds payable by cheque
mailed to owner.

17. Debenture Stock: — ^This appears to be similar in character to British Treasury
Bonds.

18. War Savings Certificates: — These are in the familiar form. They are sold at
a discount and paid off at par at the end of three vears. thus the interest is realized
kt the time the principal is collected.

THE DOMINION OF CANADA

l-ss

QUOTATIONS DOMINION BONDS

LONDON STOCK EXCHANGE

Name

,...

....

.„.,

,...

,.,.

„.„

,.„

,0.

....

3M% Bonds I900-J4.

(Int. Jirae. Dec.1 . ,
3% Loan, .938. (Int.

Jan.. Julyt

3H% Can. Pac. Land

Gran.. ig3S. (Int.

Jan.. MA . . .
3W%BdF.CDnv.. I9Id-

15. (Int. Jan., July)
4K%Bda..red. lOao-as

H
L
M
L
H
1-

02 ■<

90%

ro3

iioH

04M
TO.M

5 IK

96 M
90 M

96H

osJi

07 J<

looH

94'-*

7BK

94%

07K

03 n;

76
^9
67H

7SK

935i
OlH

96%

9-iVi

oiH

tMONTREAL STOCK EXCHANGE

Calendar Ytars
Name

War Loan, lo^s ....

War Loan, I03T ....

War Loan. 1537 ....

Victory War Loan. 1911

Victor; War Loan, 1913 .

Wctory War Loan, i

Victory War Loan, Ifi33 .

Victory War Loan, i

t Furnished by Head Office, E

IS6]

BANKERS TRUST COMPANY

QUOTATIONS DOMINION BONDS— Continued

tTORONTO STOCK EXCHANGE

War Loan. 1925
War Loan, 1931

War Loan. Z937

Victory War Loan. 1922
Victory War Loan. 1923
Victory War Loan, 1927
Victory War Loan, 1933

Victory War Loan, I937

97H
97H

99H
97

99H
97H

9SH

98H

9iJi

9SH

96H

93H
96^^
92
97H
9i>i
100
98>i

lOI

98H

102H

lOI

1005^

9SH

loiH

9S>i
102

96>4

lOlH

98 Vi
102

98>4
104^

99^
106 V^
100

107H
100 )i

tFumished by Head Office, Bank of Montreal.

NEW YORK STOCK EXCHANGE

Calendar Years
Name

H
L
H
L
H
L

1914

•

191S

Z916

1917

19x8

1919

Dominion of Canada
5% Cvold Bonds 1921 . . . .

(Int. Apr. & Oct.) ....
S% Gold Bonds 1926

(Int. Apr. & Oct.) ....
5% Gold Bonds 1931

(Int. Apr. & Oct.) ....

lOOH

99H

loiH

9lH

102H
9tH

1005^
90
100

89
looJi

87H

9ZH

97H

90^

88^

99H
96H
98H
92

98H
90H

THE DOMINION OF CANADA [ 1 57

NATIONAL WEALTH

Inventory of the National Wealth of Canada

Farm values (lands, buildings, implements and live

stock) $5,078,208,763

Mines and forests 1,200,000,000

Fisheries (capital invested) 47,143,125

Steam and electric railways 1,500,000,000

Canals 125,000,000

Shipping 35,000,000

Telegraphs and telephones 100,000,000

Urban real property (based on assessments of 140

localities) 3,500,000,000

Manufacturing machinery 567,262,538

Stocks of raw materials and manufactured goods . . 745, 546,3 10

Stored products of the farm, fisheries and the mine . 500,000,000

Household furnishings, clothing, carriages, motors, etc. 800,000,000

Specie 210,000,000

Imported merchandise in store 250,000,000

Total $14,658,160,736

or, say, sixteen billions, if * * * provision for current production be
admitted.

R. H. Coats, Domi ion Statistician,

In Journal Canadian Bankers Association

1 58 ] BANKERS TRUST COMPANY

NATIONAL INCOME

We have nothing in Canada corresponding to the data yielded by
income tax administration in Great Britain, and it will be some time
before the want is supplied. The method accordingly of estimating
national wealth from income tax, made familiar in the Old Country by
Sir Robert Giffen (land being capitalized at 26 times its annual yield,
houses at 15 times, railroads at 28 times, etc., etc.), is not possible here.
In the census of 191 1, however, every individual on salary or wages
was asked to state his or her total earnings during the preceding year.
A question of this kind, requiring the exercise of memory, and in many
cases involving calculation, does not always yield satisfactory informa-
tion. The results, however, may be briefly analyzed :

Replies were received in the case of 1,367,557 of age 15 or over
(1,124,383 male, 243,174 female), their total earnings being $742,620,600,
an average of $592.75 for each male and $313.12 for each female. For
some 260,716 additional individuals on salaries and wages (203,947 male,
56,769 female) the information was not usable. Estimating for these,
however, on the same basis, additional earnings of $132,662,700 are
shown, or a grand total of $881,283,000.

There remains to estimate for persons operating on their own ac-
count, whose earnings take the form of profits, professional fees, etc.
First, as to their number: the total male population in 191 1 was 3,821,-
995, of whom 1,198,175 were under 15 years of age. Deducting the lat-
ter, and also the total males on salaries and wages as above, the remain-
der, 1,295,490, represents the number on their own account, a total in-
cluding Indians and Eskimos and a certain proportion of dependents.
Of females operating on their own account no record has been compiled,
but their numbers would doubtless bring the total to 1,300,000.

As to the income of these, no estimate is possible. It would seem
natural to place it higher per capita than that of the salaried and wage-
earning class. At $800 per year, the total would be over $1,000,000,000.
Altogether a national income approaching $2,000,000,000 would seem
a not unfair estimate for 1911. The rise in wages and prices would
probably bring this to $2,400,000,000 in 1918.

R. H. Coats, Dominion Statistician,

In The Monetary Times, Toronto,

January 3, 1919.

THE DOMINION OF CANADA [ 159

THE JUDICIAL COMMITTEE OF THE PRIVY
COUNCIL OF GREAT BRITAIN

The Privy Council never meets as a whole now except for cere-
monial purposes. Its action is, indeed, still legally necessary for the
performance of many acts of state, such as the adoption of Orders in
Council, and the like; but this is a formal matter, requiring the presence
of only three persons, who follow the directions of a minister, for all
cabinet ministers are members of the Privy Council. The Council does
real work to-day only through its committees. Of these the most
notable is the Judicial Committee.

The House of Lords is not the only court of last resort in England.
There is another with much the same personnel, but quite a different
jurisdiction. This is the Judicial Committee of the Privy Council,
which hears appeals from tKe ecclesiastical courts, from the Channel
Islands and the Isle of Man, from the colonies and dependencies, and
from English courts established by treaty in foreign lands. It is amaz-
ing that any one tribunal should be able to deal intelligently with
the manifold systems of law that come before the Judicial Commit-
tee. Upon its docket one may find a case from Australia involving
English Common Law or Equity, another involving Roman French Law
from Canada, a third requiring a knowledge of the Roman Dutch Law
of Guiana or the Cape, still another that turns upon Hindoo or Moham-
medan law in India, and so on through the long list of British posses-
sions over the whole face of the earth. The capacity of the court to
deal with all these questions is the most astonishing because its
regular members are for the most part the same men who sit as judges
in the House of Lords.

Formerly the Judicial Committee was in fact as well as in law a
very different body from the House of Lords sitting as a court, and its
paid judges were wholly distinct; but, when salaried life peers were
created, it was thought that they might be charged with the bulk of
the work in both courts. At first two Lords of Appeal in Ordinary
were appointed, with power to sit in the Judicial CotwnvAXs^N -mx^ -a.

l6o ] BANKERS TRUST COMPANY

further provision was added that instead of filling any vacancies which
occurred among the principal paid members of that Committee, a third
and fourth Lord of Appeal in Ordinary should be appointed. This has
long since been done, with the result that a few years ago the Judicial
Committee was made up of very nearly the same persons who did the
judicial work of the House of Lords. All the latter, being privy coun-
cillors, were entitled to sit in the former, and almost all the members
of the Judicial Committee were, in fact, Lords of Appeal. Of late,
however, the desire to draw the bonds of the empire closer has led to
giving places on the Committee to colonial judges, and this has increased
the members of that Committee who do not sit in the House of Lords.
Suggestions have been made from time to time that one great court of
last resort should be created for the whole empire; but at the present
moment it seems less nearly a fact than it was a dozen years ago. The
Judicial Committee is now composed of one or two former Indian or
colonial judges appointed for the purpose, who receive eight hundred
pounds a year between them; of the Lords of Appeal in Ordinary; of
all members of the Privy Council who hold, or have held, high judicial
office in the United Kingdom, or (not exceeding five in number) in the
self-governing colonies; and of two other members of the Privy Council
if the Crown thinks fit to appoint them.

Neither in the House of Lords nor in the Judicial Committee is
the form of giving a judgment that which is customary in courts of law.
The law lords address the House one after another as if they were
arguing a motion before the whole body of peers, and the action taken
in the case is entered in the Journals of the House as a part of its pro-
ceedings. A decision of the Judicial Committee, on the other hand, takes
the form of advising the crown what ought to be done, with a full
statement of the reasons therefor — advice which is, of course, invari-
ably followed. There is another matter relating to the method of giving
judgment that is more substantial. The usual custom, in courts that
have derived their traditions from English sources, of publishing dis-
senting opinions may have a bad effect when the court is nearly evenly
divided. The decision in such a case is not perfectly conclusive upon

THE DOMINION OF CANADA [ l6l

the point of law involved, for if some of the judges who made up the
majority die or resign, and others are appointed in their stead, it may
be possible to raise the question again, and perhaps with a different
result. This difficulty is avoided by both of the British courts of last
resort, although in different ways. The House of Lords now holds
itself incompetent to overrule its own decisions; and the Judicial Com-
mittee, which delivers a single collective opinion, is forbidden to make
public any dissent or difference of views among its members.

A. Lawrence Lowell,

The Government of England,

Vol. I, p. 79 and Vol. II, pp. 465-468*

1 62 ] BANKERS TRUST COMPANY

THE GOVERNMENT OF CANADA

The following paragraphs, condensed from Sir Joseph
Pope's "The Federal Government," supplement the state-
ments in the text in regard to Canada's form of Government.

THE PRIVY COUNCIL

The British North America Act provides that there shall be a council
to aid and advise the governor-general, which shall be styled the King's
Privy Council for Canada. The members of this council are appointed
by the governor-general on the advice of his ministers, and may be
removed by the same authority. Otherwise their tenure of office is for
life. "Once a Privy Councillor, always a Privy Councillor'* is substan-
tially true. George III struck Charles James Fox's name from the roll
of his Privy Council, and a few similar cases are recorded in the long
course of English history, but, so far, none in Canada. A privy councillor
takes a special oath of secrecy and signs the council-roll in the presence
of the governor-general. He receives no commission or other evidence
of appointment, nor does any emolument attach to the office. The
position, nevertheless, carries with it a high place in the social and
official world, and is a distinction rarely bestowed on any public man
other than as a necessary qualification for cabinet office. Members of
the Privy Council are entitled to be styled "Honourable," and this for
life.

The membership of the Privy Council is not limited in number.
In 19 1 2 there were sixty-nine Privy Councillors. Of these, eighteen were
in the cabinet; forty-two had held cabinet office, but were not in the
ministry; eight, although never holding cabinet office, had been speakers
of the Senate or of the House of Commons. The remaining member was
Lord Strathcona and Mount Royal.

The Canadian Privy Council, as distinct from the cabinet, has never
been called together.

In theory the Privy Council is the body upon whose advice the gov-
ernment of the country is carried on, but it has been superseded in
practice by the cabinet, to which have passed the advisory and con-
sultative functions which in times gone by were exercised by it.

THE DOMINION OF CANADA [ 1 63

THE CABINET

The cabinet is in name and in fact a committee of the Privy Council,
selected by the prime minister from among those councillors who possess
the confidence of the House of Commons. It is also in a real and true
sense, as Bagehot well says, "a board of control chosen by the legislature
out of persons whom it trusts and knows, to rule the nation. ... A
combining committee — a hyphen which joins — a buckle which fastens
the legislative part of the state to the executive part of the state. In
its origin it belongs to the one, in its functions it belongs to the other."
As will be inferred from the foregoing, a cabinet minister must possess
a seat in one or other branch of the legislature — not necessarily on
appointment, but within a convenient period thereafter. If not actually
a privy councillor, he must be sworn of that body as a condition prece-
dent to his entry into the cabinet, for it is from the ranks of the Privy
Council that cabinet ministers are drawn. In law the Privy Council
remains the advisory body — the cabinet is unknown. It is undoubtedly
a singular fact that this body, all-powerful under the British system of
government, should have no legal existence. The cabinet is never men-
tioned in any act of parliament. It keeps no record of its own proceed-
ings, or even of its meetings, which are secret. No secretary or clerk is
present thereat. Its number is not fixed. The names of its members
are not to be found collectively in any public document. They are not
even officially announced, save by the prime minister, verbally on the
floor of parliament, and then, it may be, months after the cabinet has
been formed. Should the life of a ministry lie wholly within a parlia-
mentary recess, that is to say, should the new cabinet never have met
parliament, its composition might not be officially known at all. No
formalities attend admission into its ranks, nor is any oath taken by
a member of the cabinet as such.

The function of the cabinet is to advise the governor-general in all
matters pertaining to the carrying on of government. Questions are
freely discussed at cabinet meetings and in cases of pronounced differ-
ences of opinion are sometimes decided by vote; but once a line of
policy is agreed upon, all the members are equally responsible for the
decisions arrived at and are equally bound to support and defend them
or resign.

164 ] BANKERS TRUST COMPANY

There is not a fixed number of cabinet ministers. As a rule there are
from thirteen to fifteen members. In the formation of the cabinet care
must be taken to see that the various geographical and racial divisions
of the dominion are represented with some regard to their relative
importance.

While the heads of public departments of the government of Canada
are always cabinet ministers, it is well to remember that the cabinet
minister, who is at the same time head of a department, occupies a dual
position. He is an adviser of the crown. As such he receives no formal
appointment. He takes no oath of office, is paid no salary, and his
tenure is wholly dependent upon the prime minister. But, in addition
to this, he is head of a department of government. As such he fills a
public office to which he is appointed by commission under the great
seal. He receives a salary for the discharge of duties which he takes an
oath to perform. Thus it is that after the dissolution of a cabinet by
the prime minister's death or resignation, the heads of departments
continue to perform ministerial functions until their successors are
appointed. A cabinet may contain one or more members who hold no
ministerial office. These are called ministers without portfolio.

The British constitutional principle requires every act of the crown
to be performed on the advice of responsible ministers. In England the
cabinet assembles informally to advise the sovereign on matters of
public policy, not to perform any ministerial act. These meetings are
quite distinct from those of the Privy Council which are held for the
transaction of the business of state, such as the issue of proclamations,
orders-in-council bringing statutory provisions into effect and other
formal acts of government, for it is only through privy councillors that
the crown can do anything. The function of the English Privy Council
is to carry into effect advice given to the sovereign by the cabinet or
to discharge duties imposed upon it. The king is never present at
cabinet meetings. His Majesty, however, frequently presides at privy
councils.

Canada has in actual practice combined the functions of these two
bodies. The cabinet stands in the same advisory and consultative
relation to the governor-general in respect of general questions of policy
as the English cabinet occupies toward the sovereign. It sits also at
the same time as a committee of the privy council and as such transacts
a vast amount of administrative business which in England is dealt with

THE DOMINION OF CANADA [ 1 65

through the Privy Council, or departmentally by individual ministers.
This is indeed its principal function. The governor-general never attends
the deliberations of his cabinet.

THE PRIME MINISTER

The leading personage in the government unquestionably is the prime
minister — ^the choice at once of the governor-general and of the people,
and the principal intermediary between the two. As chief adviser of
the crown, it is he who moulds and directs the policy of the administra-
tion. To him belongs the right of choosing his colleagues, subject to
the approbation of the governor-general. He can at any time call for
the resignation of any minister, and his withdrawal from office carries
with it the dissolution of the cabinet. The decisions of the ministry on
questions of public policy are communicated to the governor-general by
the prime minister, who is the spokesman for the cabinet, and upon
whom rests in a very special degree the responsibility for advice tendered
to the sovereign's representative.

The prime minister is the acknowledged chief of the dominant party
in parliament. Strange as it may seem, this office which unites in itself
the authority of the crown and of the people is unknown to the
constitution.

The office of prime minister is conferred by the governor-general,
who upon the resignation of his advisers "sends for" — in theory, whom-
soever he pleases — in practice, for the recognized leader of the opposition
in parliament, and entrusts him with the formation of a new adminis-
tration. The person to whom this duty is confided confers with the
leading members of his political party, and when ready submits the
names of his proposed colleagues to the governor-general, who signifies
his approval of the arrangements.

As the governor-general is virtually restricted in his choice of a
chief adviser to the leader of the opposition or to the person whom that
gentleman may recommend, the prime minister, in turn, is limited in
the formation of his cabinet by various considerations, one being that
his new colleagues must be members of one or other branch of the
legislature and must also be acceptable to the House of Commons, or
more particularly to the members coming from the province which they
are to represent in the cabinet. It is, of course, desirable that the cabinet
minister should be persona grata with, or at least not petsaw^VV>3 ^V^^-
tionable to, the governor-general.

1 66 ] BANKERS TRUST COMPANY

THE MINISTER OF FINANCE

The minister of finance, as regards weight and influence, is generally
looked upon as second only to the prime minister. His full title is the
minister of finance and receiver general. He is the member of the
cabinet primarily responsible to parliament for the finances of the coun-
try. He has the principal voice in the imposition and regulation of taxa-
tion. He negotiates the loans from time to time required for the public
service. He largely controls the expenditures. It is his business to ask
parliament to vote the amount necessary to the carrying on of the
government. Nor is his influence in fiscal matters confined to the House
of Commons. It is felt in every branch of the executive government
and is a potent factor in the council chamber itself, where he sometimes
discharges the not altogether agreeable duty of criticizing and, it may
be, of opposing such projects of his collegues as would involve a larger
expenditure than in his judgment the resources of the country should be
called upon to bear.

It is the duty of the minister of finance to lay before the cabinet
the estimates made by the different departments for sums needed for
the service of the ensuing year. These estimates when finally agreed
upon are submitted to the House of Commons [as explained on page 145,]
and when the supply bill becomes a law a minute of the Privy Council
is passed on the recommendation of the minister of finance by which
these supplies are placed at the disposal of the other departments.
When a department wishes to draw upon any special vote the deputy
minister asks the auditor general for a credit on any of the banks in
which public moneys are kept. These credits are issued by the minister
of finance upon application of the auditor general. The advances are
subsequently recouped to the bank by the minister of finance. In certain
circumstances, instead of a credit, cheques are issued, but in both cases
it is the minister of finance who holds the purse and thus exercises an
effective check upon the public expenditure.

The finance department is charged with the management of the
public accounts, debts and obligations of the dominion. It also controls
the currency, including the issue and redemption of dominion notes.
The government savings banks and the department of insurance are
under the direction of the minister of finance.

THE DOMINION OF CANADA [ 167

Some weeks before parliament meets, estimates of the sums needed
for the services of the ensuing year are submitted by the various depart-
ments to the minister of finance, who lays them before the cabinet,
where they are discussed item by item. In these discussions the minister
fills the rdle of a censor, with a view to curtailing, as far as may be
consistent with the requirements of the public service, the demands of
his colleagues upon the Treasury.

The estimates, when finally agreed upon, are brought down to the
House of Commons by message from the governor-general, without
whose authority no measure involving any charge upon the people can
be received or considered. This message is presented by the minister of
finance, who moves that it and the estimates be referred to the com-
mittee of supply. Parliament votes the money in the form of a grant
to the sovereign. When the royal assent is given to the supply bill, a
minute of the privy council is passed, on the recommendation of the
minister of finance, by which the governor-general, as the representative
of the crown, "releases" these supplies, placing them at the disposal of
the several departments.

THE TREASURY BOARD

The minister of finance is assisted in the performance of his duties
by the Treasury Board, which is in effect a committee of the privy council
and is composed of the minister of finance and any four of his colleagues
in the government nominated by the governor in council. The deputy
minister of finance is the secretary of this board.

THE AUDITOR GENERAL

Closely connected with the treasury board is the auditor general, an
officer appointed by the governor in council at the instance of parlia-
ment, for the more complete examination of the public accounts and
for reporting thereon to the House of Commons. In order to insure
his independence of the executive, it is provided that he shall hold
office during good behavior — that is to say, he can be removed from his
position by the governor-general only on an address of the Senate and
House of Commons.

1 68 ] BANKERS TRUST COMPANY

The duty of the auditor general is to keep watch over the public
expenditure, see that no expenditures are made in excess of appropria-
tions by parliament or without the authority of the governor in council.
It is his duty to see that all contracts have been carried out in accord-
ance with their terms and to examine and audit the accounts of the
several departments. He is required to lay before the House of Com-
mons his annual report. He reports to the governor-general in council
through the minister of finance, who also presents his report to the
House of Commons.

THE SUPREME COURT OF CANADA

The Supreme Court of Canada was constituted in the year 1875
by act of parliament of Canada 38 Vict. cap. 2. It consists of a chief
justice, styled the chief justice of Canada, and five puisne t judges, of
whom at least two must be from the Quebec bench or bar. Five
judges form a quorum, but if both parties consent to a hearing before
four judges, such hearing may take place. Should the full court be
evenly divided on a case, the judgment of the court below stands.

The Supreme Court possesses an appellate civil and criminal juris-
diction throughout the dominion, but no appeal is permitted in a
criminal case except as is provided in the criminal code. In civil cases
an appeal lies to the Supreme Court from the highest court of final resort
in each province, subject to certain conditions which are set out in
chapter 139 of the revised statutes of Canada.

The judgments of the Supreme Court are declared by the organic
statute to be final and conclusive in all cases, saving the royal pre-
rogative, which means that no appeal from the court's decisions can be
carried to England except by leave of the Judicial Committee of the
Privy Council. Leave to appeal is sought by petition addressed to His
Majesty the king in council. Such petitions must be accompanied by
duly authenticated documents embodying the judgments of the Supreme
Court which is appealed from, and the factums in the case. Leave to
appeal is not as a rule granted unless the amount at issue is considerable,
or some important principle, is involved. Admiralty cases coming from

fA judge ofiDferior rank.

THE DOMINION OF CANADA [ 1 69

the Supreme Court by way of appeal from the Court of Exchequer may
in turn be appealed to the Judicial Committee of the Privy Council,
without specific permission from that tribunal.

Important questions of law or fact touching any matter may be
referred by the governor in council to the Supreme Court for hearing
and consideration, and the opinion of the court upon any such reference,
although advisory only, is, for all purposes of appeal to His Majesty in
council, treated as a final judgment of the court between parties.

The Senate and House of Commons may also refer to the Supreme
Court, or to any two judges thereof, for examination and report, ques-
tions relating to private bill legislation in either house. Advantage is,
however, seldom taken of this provision.

170 ] BANKERS TRUST COMPANY

Authorities

AS this book is the outcome of special research we have
had little occasion or opportunity to refer to other
books or publications. Credit is given in the text to such as
have been of value.

Canadian friends and government officials have been most
courteous and helpful in furnishing data which we required.
The statements in regard to the dominion finances and in
regard to the natural and developed resources, domestic and
foreign trade, railroads and shipping are based upon data
furnished by the departments at Ottawa having these matters
in charge, while Mr. Frederic Hudd of the Dominion Bureau
of Information in New York has actively cooperated with us
with a view to making the book an authoritative source of in-
formation in regard to Canadian affairs.

We are under special obligations to Mr. John Mackay of
Toronto for valuable suggestions and interpretative memo-
randa in regard to Canadian affairs in general and especially
in regard to governmental and financial methods and the
credit situation. Mr. C. L. Foster, agent in New York of the
Canadian Bank of Commerce, has been good enough to give
us important data in regard to the Canadian banking system
of chartered banks and other valued suggestions. In the
preparation of the chapter on banking, we have also had the
cooperation of other Canadian banking friends who have
given us the benefit of their knowledge of the banking and
credit situation.

We take this opportunity to cordially record our thanks
to each and all of those mentioned ^fcove.

Index

Authorities, 170
Agriculture, products, 68-70
Area, dominion, 66; provinces, 66

Banks and banking system, 43
Banks, chartered, 43; assets 19 14-
1920, 49; assets each bank. Tune,
1920, 45; assets and liabilities,
effect of war on, 11; audits, 53;
audits, currency, by Canadian
Bankers Association, ^4;
branches, British and foreign,
48; credit system, 44, flexibility
of, 48; currency, 40; currency-
audit, 54; legal tender regula-
tions, 41; redemption fund, 42;
deposits, 19 14- 1920, in and out-
sicle of Canada, 26; foreign busi-
ness, 50, table. III; liabilities,
19 14- 1 920, 51, each bank, June
30, 47; loans, how secured, 46,
to United Kingdom in war, 11;
organization 50-53; savings de-
I^artments, 56; stockholders'
liabilities^ 27; war financing, 9
Banks, savings, 26, 54, 55; char-
tered banlra, 56; dominion gov-
ernment, 56, 57; incorporated,
55*. post office, 56

Canadian Bankers Association, 54
Canadian Government Merchant
Marine, Ltd., 20; agreement
with Alfred Holt & Co., 20;
agreement with Cunard Co., 20
Canadian National Railways, 20
Canadian National Railway Sys-
tem, earnings, 119; history, 113-
116; mileage, 116, 117

Canadian Northern Railway, earn-
ings, 119; history, 113-115; mile-
age, 116

Canadian Pacific Railway, earn-
ings, 120; history, 113; mileage,
112, 117

Coal, resources, production, con-
sumption, exports, 70-74

Commercial paper, Canadian vs.
United States usage, 46

Credit Structure, 22; condition in
June, 1920, 30; debt vs. wealth,
22, 23; debt charge vs. national
income, 22, 23; debt, compari-
son other nations, 24, 25; de-
posits and note circulation vs.
gold reserves, 25; gold reserves,
26, 27, trade financing power,
28, 29, vs. prices, 28

Currency, bank notes, 26; domin-
ion notes, 26; circulation per
capita, Canada, 42, United
States, 42, United Kingdom, 42 ;
dominion notes uncovered, lia-
bility of government, 27; note
and deposit vs. gold reserve, 26

Customs — See Finance, national

Dairy products, 70

Debt, national 36 ; Canada vs. other
nations, 24, 25; classified state-
ment, table, 36; funded, descrip-
tive table and notes, 152-154;
interest charge, 23 per cent,
national income, 23; per cent,
of wealth, 22, 23 ; sinking fund, 23

Debt, national, increase due to
war, 8

Dominion, origin ol wa.xMb^'v^

Domvmoti X^a-^ , "^>2\^ '^^'» '^

\V1^

172]

BANKERS TRUST COMPANY

Educational System, 2

Exchanges, foreign, dislocation of,
18; effect on manufactures, 89;
visible and invisible factors dur-
ing war, table, 109; pre-war,
104, war, 106

Expenditures, national — See Fi-
nance, national

Exports, 97; invisible, 100

Finance, national: assets, 36, 37,
table, 38; chartered banks in the
war, 9; credits interchanged
with United Kingdom, 8, 37;
currency-bank notes, 40, circu-
lation, 42, circulation per cap-
ita, 42, coins, 39, dominion
notes, 39; custom receipts, 1914-
1920, table, 3^; debt, 8, 22, 36,
funded, descnptive table and
notes, 152-154, interest charge
vs. income, 25, net, 36, 37, 38;
debt vs. wealth, 25; expendi-
tures classified, 19 14- 1920, table,
33; policy of government during
war, 32; receipts, 1914-1920,
classified table, 34; revenue, es-
timated, 1 920-1 92 1, 35; revenue
and expenditure, 1914-1920, 32;
taxation, 34, business profits
war tax, 34, corporations, 34,
income war tax, 34, luxury tax,
35, non-residents, 34, present
methods (1920), 34; sales tax,
35; stamp tax, 35; treasury bills,
9, 10

Financial System, 144-150; ap-
propriation, 146, 149; assent of
sovereign, form, 150; budget,
145; budget principle prevails,
14^; budget speech, 148; com-
mittee of supi)ly, 146; consent
of crown to legislation, 144; esti-
mates, 145; executive responsi-
ble for£nance8, 149; finance bill

and the Senate, 150; financial
legislation must ori^nate in the
Commons, 149; legislative pro-
cedure, 147; money resolution
acted on only after notice, 145;
recommendation of crown re
legislation, 144; supply bill, 149;
treasury board, 167; ways and
means committee, 147

Fisheries^ 76

Foreign Exchange, 103-111; fun-
damental principles, 103

Fur Trade, 77

Germany, debt and wealth, 25;
interest charge and income, 25

Gold, exports and imports, 96,
no; reserves, bank and govern-
ment, 26; per cent, credit struc-
ture, 26; per cent, currency and
deposits, 26; United Kingdom,
27; United States, 27; trade fi-
nancing power, 28, 29

Government of Canada, 1 37-1 41 ;
British North America Act, 137;
cabinet, 140-142, 163; cabinet
system, 140; executive, 140;
form of, compared with United
States of America, 138, 139; par-
liamentj 142; prime minister,
165; privy council, 162; provin-
cial governments, 14^* relations
of United Kingdom with colonies
and dominions, 129-136; sup-
reme court, 168

Grand Trunk Railway, earnings,
119; government control, 115;
history, 113; location, 114; mile-
age, 112, 117

Grand Trunk Pacific Railway,
earnings, 119; government own-
ership, 114, 115; history, 113,
115; mileage, 117

Great Britain — See United King-
dom

THE DOMINION OF CANADA

[173

H
Holt, Alfred & Co., 20

Imports, 97; invisible, 100

Income, national, 1914-1920, 22,
158; table, 158; revenue, see
Finance, national »

Industries, effect of war on, 12;
exchange, foreign, dislocation of
stimulates, 19; growth, 13; man-
ufacturing, 84-90

Invisible trade balance, 100;
summary, 1914-1919, table, 103

Italy, debt and wealth, 25; interest
charge and income, 25

Judicial Committee of the Privy
Council of Great Britain, 135,

159

Lumber, resources and output, 75-
76

Manufactures, 84-90; foreign own-
ed factories, 88; "Made in
Canada" campaign, 89; statis-
tics, tables, 85, 86

Map, 64

Minerals, coal, 72-74; principal
products and value, table, 71

Mortgage and loan companies, 60

Navy, status in 1920, 127; status
in war, 6

Notes, bank, dominion — See Cur-
rency

National Debt — See Finance, na-
tional

Population, dominion, 66, 67;
provinces, 67

Provinces, 66; area, 67; map show-
ing location of each, 64; popu-
lation, 67

Prices, 1914-1920, 28; vs. credit
structure, 28

Public Debt — See Finance, na-
tional

Q
Quotations, dominion bonds, 155,
156

Railways, 1 12-120; Canadian Na-
tional System, 115, 116, 117,
119; Canadian Northern, 113,
114, 116, 117, 119; Canadian
Pacific, 112, 113, 117, 120; earn-
ings, 119, 120; government con-
trol, 19; government ownership,
112; Grand Trunk, 112-119;
Grand Trunk Pacific, 113-119;
history, 113; mileage, 112,116,
1^17; rolling stock, 118

Resources, natural, 68; agricul-
ture, 68-70; dairy products, 70;
fisheries, 76; forest products, 75;
fur trade, 77; minerals, 70-74;
water-powers, 78-83

Receipts, national — See Finance,
national

Revenue, national — See Finance,
national

Rural Credit Societies, 62

Shipping, Canadian Government
Mercantile Marine, 125; lake
and river traffic, 126; number
and tonnage of registered ves-
sels, 126; tonnage, 121, 125, 126

Shipbuilding, 121; for war, 121;
for peace, 123; government con-
trol, 19; vessels built iqid^-v^v^^

I2/V

174]

BANKERS TRUST COMPANY

TariflF, 91-95

Taxation — See Finance, national

Trade balance, invisible, 100;
table, 103; visible and invisible,
109; visible, 97

Trade, foreign, classified as to
character^ 1914-1920, tables, 97,
98; classified as to countries,
table, 99; comparative data,
1902-1920, 96, 97; France, 15;
Italy, 15; in 1920, 16; in the
war, IJ-15; United Kingdom,
second best customer, 14; United
States best customer, 14

Trade, invisible, 17

Trust Companies, 57; business,
character of, 58; statistics, 59

United Kingdom, debt and wealth,
25; interest charge and income,
25; empire overseas, 129-136:
colonies, 129; dominions, 130-
136, foreign relations, 132, gov-
ernor-general, 130, national
defense, 134, systems of justice,
1 35 1 veto power, 132

United States, debt and wealth,
25 ; interest charge and income,
25; investments in Canada, 17

War, 1914-1918, army, 5; casual-
ties, 5; numbers, 5; rehabilita-
tion of returned soldiers, 7; cost
of, casualties, 5, money, 7; cost
of, table, 33; exchange, foreign,
dislocation of by, 18, prior to
war, 104, during war, 16'. fi-
nance, banks, 9; cost, cost per
capita, 8; credits interchanged
with United Kingdom, 8; debt,
national, 8; foreign trade dur-
ing, 13; industries in the war,
12; naval activities, 6; notable
battles, 5; railroads, status in,
19; shipping, 20; shipbuilding,
20; trade, foreign, effect on ex-
changes, 18

Water-powers, potential and de-
veloped, 78-83

Wealth, national, 8, 22, 38, 157

Wheat, crop, price, exports, table,
70

■ mmm

-m

This boot should be retumorl to 1
the Library oe or before the last dale
stnmpod below.

A flue or five centa a das is tnourrod
by retaining it beyohd^o spedfled

Please r«tum prom^^lMfcA

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