late nineteenth century business cycles in canada

Late Nineteenth Century Business Cycles in CanadaAuthor(s): Edward J. ChambersSource: The Canadian Journal of Economics and Political Science / Revue canadienned'Economique et de Science politique, Vol. 30, No. 3 (Aug., 1964), pp. 391-412Published by: Wiley on behalf of Canadian Economics AssociationStable URL: http://www.jstor.org/stable/139706 .

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LATE NINETEENTH CENTURY BUSINE,SS CYCLES IN CANADA*

EDWARD J. CHAMBERS University of Washington

THE last third of the nineteenth century, covering the years from Confederation until the beginning of the era of rapid expansion on the Western prairies, was a formative period for Canada. It is surprising that this period has as yet received little attention from economic historians, for analyses of demographic and economic changes during these years may yield high returns in the form of a more sophisticated interpretation of Canadian development.

One of a number of important yet neglected aspects of these years in Canada is the business cycle, and the purpose of this paper is to report some new research in this area. A study of business cycles, as opposed to "panics," implies the existence of a clearly defined cyclical sequence that becomes apparent once an economy has reached a certain state of commercialization. While the process of commercialization in Canada generally lagged behind that in the United States it is clear that even before Confederation a viable market economy had been created in the united province of Ontario and Quebec. There is good reason to believe that by the time of Confederation factor and product markets were functioning quite smoothly and that the price system was playing a prominent role in allocating resources.

The two most authoritative, though far from definitive, accounts of cycles and growth in the late nineteenth century are contained in the works of Breckenridge and Skelton.1 Other students of Canadian economic history have relied heavily upon Skelton's findings about the pace and nature of activity in the post-Confederation years. Skelton concludes that the short period from 1869 to 1873 was a prosperous one, despite the abrogation of reciprocity with the United States, because (1) exports to the latter were well maintained, (2) Canadian producers were successful in finding new domestic markets, and (3) there were expanding sales to the United Kingdom. In contrast the period from the mid-seventies through the mid-nineties he considered to be "Days of Trial" during which Canada waited grimly for a favorable turn in its economic fortunes. In the late nineties Canada's "hour had struck" with emerging opportunities for agricultural expansion in the prairie west.2

*The author expresses his appreciation of financial assistance received from the Institute for Economic Research, Queen's University, and the College of Business Administration, University of Washington.

IR. M. Breckenridge, "Canadian Banking System, 1817-1890," in Journal of the Cana- dian Bankers' Association, II, 1894-95, 334 ff.; and 0. D. Skelton, "General Economic History, 1867-1912," in Adam Shortt and Arthur G. Doughty, eds., Canada and Its Provinces (Toronto, 1914). One should also note the inclusion of Canada in Willard Thorp, Business Cycle Annals (New York, 1926), 299 ff.

2See Skelton, "General Economic History," the sections entitled "The Ebb and Flow of Prosperity," and "Days of Trial," 135 if. He may well have been influenced by the substantial body of economic literature that regards the last quarter of the nineteenth century as one of long-wave depression for the English-speaking members of the North Atlantic

391

Vol. XXX, no. 3, Aug., 1964



392 Canadian- Journal of Economics and Political Science

With due respect to the work of Breckenridge, Skelton, and others it is evident that understanding of Canada's changing economic structure during these years is seriously limited by gaps in our knowledge. For example, no study has yet attempted to delineate precisely the cycles of the late nineteenth century. To study cycles is not to study the factors underlying growth, yet by pushing back business cycle chronology and by more fully understanding the nature of cyclical movements it should be possible to learn a good deal about changing economic structure and possibly to frame more penetrating questions about the nature of growth and development in these years.

The approach in this paper is quantitative-historical, linking time series analysis with qualitative evidence drawn from the annals of the period.3 The first step was to find and develop time series appropriate for distinguishing cyclical movements. Monthly or quarterly series were preferred since annual data blunt turning points and tend to obscure the more moderate cyclical contractions in business activity. Needless to say the further one goes back into the nineteenth century the more discouraging is the discrepancy between the series one would like and those that are available in consistent form or can be constructed from raw data. The series employed were the following:

Monthly Series 1. Total merchandise exports, 1875-1900 (value) 2. Forest Product exports, 1875-1900 (value) 3. Exports of mine products, 1875-1900 (value) 4. Exports of manufactured products, 1875-1900 (value) 5. Agricultural exports, 1875-1900 (value) 6. Animal and animal product exports, 1875-1900 (value) 7. Total merchandise imports, 1875-1900 (value) 8. Index of common stock values, 1868-1900 9. Money Supply (total bank deposits and currency in circulation), 1868-1900

10. Total bank loans, 1868-1900 11. Demand deposits, 1871-1900 12. Overdue bank notes and bills, 1871-1900 13. Commodity price index, 1868-1900 Quarterly Series

1. Rate of change in the money supply, 1868-1900 2. Dollar liabilities of business failures, 1875-1897

community. Research of recent years has raised some serious doubts about the use of this term to describe the period. Cf. Simon Kuznets, "Long Term Changes in The National Income of the United States of America since 1870," in Income and Wealth of the United States, Trends and Structures (London, 1952), 36-8; and W. W. Rostow, The Process of Economic Growth (New York, 1960), especially chap. m, "Investment and the Great Depression."

3Heavy reliance was placed on the Monetary Times, a Toronto weekly, which is the best single source of commentary on the economic conditions of these years, and the reports of the annual meetings of the chartered banks particularly after the early eighties. Also helpful were the Budget Speeches of the Ministers of Finance though they vary greatly in emphasis and quality; the debate on the Speech from the Throne; The Report of the Select Committee to Enquire into the Causes of the Present Depression of the Manufacturing, Mining, Commercial, Shipping, Lumber and Fishing Interests, Sessional Paper 39, 1876; Annual Reports of the Montreal Board of Trade; annual reports of the Ontario Bureau of Industries, 1883-1889; agency circulars of the Bank of Nova Scotia 1882-1897; and comments upon business conditions in the personal correspondence of Thomas Fyshe, cashier (general manager) of the Bank of Nova Scotia, in the post-1876 years.



Nineteenth Century Business Cycles 393

Annual Series 1. Business failures per 1,000 firms 2. Imports of iron and its products, 1868-1900 (value and volume) 3. Index of urban building activity, 1868-1900

A description of each of these series is found in the Appendix. The monthly and quarterly series were all seasonally adjusted.4

No aggregate measure of output, employment, or income is available. Firestone's annual GNP series represents interpolations of his estimates constructed at decennial census benchmarks.5 Though I believe that Firestone's GNP estimates are adequate as indicators of the magnitude and rate of growth in output between census years, I question their adequacy for purposes of business cycle analysis. For example, the year-to-year movements in his annual GNP estimates during the eighties and early nineties are opposite in direction from those to be inferred from the indicators used in this research.

The monthly data are dominated by measures of foreign trade and financial activity since it is in these areas of the economy that more acute and compre- hensive statistical records were maintained. Foreign trade and financial series have drawbacks when used in cyclical analysis. Certain types of merchandise exports, for example, more effectively indicate the timing of cyclical fluctuations in foreign than in domestic demand. Studies of cyclical movements in merchandise exports and some of its components since the First World War, however, indicate a fairly close correspondence in timing between specific cycles in these series and the reference cycle for aggregate economic activity in Canada.6 In the late nineteenth century, when the industrial structure lacked breadth and depth, it is reasonable to assume aggregate employment and income were relatively more sensitive to movements in the foreign demand for Canadian exports. Aggregate merchandise imports are clearly a function of domestic income and employment, and empirical analysis has demonstrated that the series is among the coincident business cycle indicators at least for the years since the end of the First World War.7

4Space precludes full discussion of changing seasonal patterns evident during the period. In general, the most striking development was marked reduction in the amplitude of the seasonal indexes, particularly in the foreign trade series. Between 1876 anw 1898, for example, the seasonal lows and highs for merchandise imports changed as follows:

Seasonal Low Seasonal High 1876 62.1 (January) 132.9 (September) 1898 87.9 (February) 115.3 (August)

There was little reduction in the amplitude of seasonal swings in this series in the years at the turn of the century, and by 1913 it had even increased slightly from a monthly low of 88.0 in January to a monthly high of 120.1 in March. This increase in amplitude and shift in seasonal pattern became evident in the decade prior to the First World War when prairie expansion was fully under way.

There are a number of possible explanations for reduced seasonal amplitude in the period examined here. One of these is associated with the virtual completion of the rail transport network in Central and Eastern Canada. Costs of transportation were reduced and obstacles imposed on the river and canal movement of goods by the relatively severe Canadian weather were removed.

WFirestone's annual GNP estimates are found in Canada's Economic Development, 1867-1953, Income and Wealth Series, vol. VIII (London, 1958), 276.

6Edward J. Chambers, "Merchandise Exports and Business Cycles," this JOURNAL, Aug., 1958, 406-10.

7Edward J. Chambers, "Canadian Business Cycles Since 1919: A Progress Report," ibid., May, 1958,174-S.



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396 Canadian Journal of Economics and Political Science

Financial series such as the money supply, deposits, loans, and security prices are reliable if used primarily to indicate the presence of cyclical movements, but are less reliable when used to assess the amplitude of expansions and contractions and to infer the degree of fluctuation in real output. There are instances, for example the American contractions of the seventies and the mid-nineties, when an evaluation of business cycle experience based largely upon financial series has apparently overstated the amplitude of changes in real output and resource utilization. Accordingly, one must be cautious in deriving measures of cyclical amplitude based upon relatively volatile financial series.8

THE SELECTION OF REFERENCE CYCLE DATES9

Table I contains the quantitative evidence for selecting tentative cyclical reference dates in the period from Confederation to 1900. It summarizes the turning points for the monthly, quarterly, and annual series that were employed. Chart 1 contains a historical monthly diffusion index showing the percentage of the monthly and quarterly series undergoing cyclical expansion.

Reference Dates in the Seventies In choosing tentative reference dates for the late sixties and early seventies,

we have to rely on the index of common stock prices, the rate of change in the money supply, and the Michell commodity price index. No cycles are evident in stock prices, but the latter two series record, respectively, specific cycle peaks in November and October of 1868 and corresponding troughs in May and November of 1869.10 A second set of specific cycle peaks is evident in the same two series in May and July of 1870, and a common trough in August of 1871.11 One annual series in which the 1868-69 decline appears is the index of urban building activity which fell by 12 per cent in 1869. An additional cyclical decline occurs in this index in 1871-72, with the 1872 volume some

8One of the financial series used as an indicator in this study is the rate of change in the money supply. The analysis presented here suggests that this series (with the exception of 1874) consistently led business cycle turning points throughout the last quarter of the century. These results confirm other findings which have shown the series to be a leading indicator in both the United States and Canada. For the United States see Milton Friedman, "The Supply of Money and Changes in Prices and Output," U.S. Congress, Joint Economic Committee, The Relationship of Prices to Economic Stability and Growth, Compendium 85th Congress, 2nd Session, 1958, 249; and "The Demand for Money: Some Theoretical and Empirical Results," Journal of Political Economy, Aug., 1959, 327-351. For Canada see George Macesich, "The Rate of Change in Money Stock as a Leading Canadian Indicator," this JOURNAL, Aug., 1962, 424-30.

9The technical questions that arise in dating cyclical turning points by the National Bureau method are critically evaluated in the Cloos-Zarnowitz exchange in the Journal of Business as follows: George W. Cloos, "How Good Are the National Bureau's Reference Dates?" Jan., 1963, 14-32; Victor Zarnowitz, "On the Dating of Business Cycles,," April, 1963, 179-99; and George W. Cloos, "More on Reference Dates and Leading Indicators," July, 1963, 352-64.

'0The quarter-to-quarter rate of change in the money supply fell from 8.5 per cent between the II and III quarters of 1868 to -0.9 per cent between the I and II quarters of 1869; commodity prices fell by 9 per cent between peak and trough.

11n this instance the peak-to-trough decline in the rate of change in the money supply was from a 9.1 per cent increase between the I and II quarters of 1870 to -4.0 per cent between the II and III quarters of 1871; the commodity price index fell by 9 per cent.




30 per cent below that in 1871.12 Though it is impossible to infer reference cycle patterns from such limited information, these series raise the question of whether recurring minor cycles were evident in the Canadian economy as early as Confederation.

Data are less sparse, though still not adequate, for delineating a major cyclical peak in 1873-74. Specific cycle peaks in some of the relevant and available monthly series are chronologically as follows:

Michell commodity price index March 1874 Rate of change in the money supply August 1874 Index of common stock prices September 1874 Money supply November 1874 Demand deposits November 1874 Overdue bank loans as per cent of December 1874

total loans in Canada (inverted) Total bank loans in Canada January 1875

Monthly and quarterly data suggest a reference peak in the latter half of 1874.13 Annual data include the Buckley index of urban building activity, and the volume and the composition of aggregate imports. The urban building index reached a peak in 1874 approximately 5 per cent above the 1873 level. Import data relating to fiscal years (ending June 30) rather than calendar years were about 5 per cent higher in 1874 than in the previous year with all categories except non-ferrous metals, chemicals, and miscellaneous products registering a gain in volume over 1873. Though the volume of imports was larger in 1874 than 1873 the slight magnitude of the gain suggests the distinct slowing down in the pace of economic expansion compared with the preceding fiscal year when the volume of imports increased by 22 per cent.'4

This quantitative evidence drawn from annual data is consistent with Breckenridge's evaluation of the upper turning point as one devoid of panic and of the symptoms usually associated with "commercial crises." He sug;g;ests

12The Buckley index shows activity in 1871 to be at a level not exceeded until 1887. 13The use of financial series in this cyclical experience appears to present a special

problem. In commenting upon the state of the Canadian economy during 1874, the Monetary Times points out one important aspect of the 1873 financial crises in New York and the accompanying decline in production and trade that would exert an impact upon the Canadian money supply and the market for chartered bank equities (March 6, 1874, 885, March 27, 1874, 969, and Jan. 8, 1875, 764-7). With the collapse of short-term rates in New York, late in 1873 and early in 1874 large sums were withdrawn by Canadian banks in the winter of 1874, and offered on call in Montreal driving down the short-term rate in that market. This encouraged buying on margin, and gave renewed momentum to increases in the money supply and to stock market loans in the Canadian market. The index of stock prices reflects this development; between August and December of 1873 stock prices declined by 4 per cent, but then rose again by 8 per cent through April of 1874. Also the quarter-to-quarter rate of increase in the money supply was especially high between the I and II and the II and III quarters of 1874 as compared with immediately preceding rates of increase. Thus percentage increases are as follows:

1873 II to III 1.8 III to IV 0.0

1873 IV to 1874 I 1.8 1874 I to II 4.3

II to III 4.7 14K. W. Taylor and H. Michell, Statistical Contributions to Canadian Economic History

(Toronto, 1931), II, 22-3.




that a levelling off from the period of expansion began in the autumn of 1873, and continued through 1874, the transition being gradual but of significant proportions.15 The Monetary Times in its review of 1874 concluded as follows: "The year taken altogether has not been as favorable as some previous ones, for although our agricultural productions have done well, the productions of the forest, which are fully as important, have suffered the most serious decline known for many years."'6

The following reconstruction of the situation in 1873-74 is offered. At the upper turning point, favourable income and employment conditions in agriculture and unfavourable circumstances in forest products were delicately offset. In the farm sector following the satisfactory crop of 1873 grain prospects were good with the 1874 yield above average. In the spring and early summer of 1874 wheat prices moved upward under a brisk British demand, and as far as can be judged trade in predominantly agricultural areas remained quite strong through the autumn of 1874. In the fall, however, wheat prices declined under the impact of a world-wide favourable harvest while among the grains generally only barley maintained a firm price. The situation in forest products contrasted with agriculture. Annual exports of forest products in constant prices were only 0.3 per cent higher in fiscal 1874 than in the preceding year.'7 The Canadian lumber industry was further disturbed by the failure in May 1873 of the leader of the American lumber ring, Dodge and Company, a firm with substantial Canadian interests. A levelling off in American lumber demand in mid-1873 was added to weakness in the British market. There is isolated and inferential evidence that the rate of lumber production slackened late in 1873 with sales to foreign and domestic markets in the succeeding months coming from stock rather than from current production.18 To sum up, the annual data and the qualitative evidence would favour a turning point late in 1873, or alternatively, in the spring of 1874. Either choice appears more reasonable than the late 1874 date indicated by the monthly data. Indeed, it is possible that the upper turning point was characterized by a double peak in economic activity, the earlier reflecting a transition in forest products and the latter a firmer tone in the export market for agricultural commodities coupled with the peaking out in urban building activity.

The contraction in the seventies was lengthy, but it was also uneven in

15"Canadian Banking System 1817-1898," Journal of the Canadian Bankers Association, 1I, 1894-95, 437.

16Jan. 8, 1875, 765. 17Taylor and Michell, Statistical Contributions to Canadian Economic History, II, 35.

Increased lumber shipments were almost completely offset by reduced shipments of square timber.

18Monetary Times, Aug. 1, 1873, vol. 7, 104. One Montreal lumber agent compared production and year-end stocks for 1872 and 1873 in the St. Lawrence and Ottawa river valleys and their tributaries as follows: (figures in millions of board feet)

1873 1872 Deals sawn 429 325 Deals on hand (end of the year) 125 70 Square timber on hand (end of the year) 286 205 Boards sawn 370 455 Boards on hand (end of year) 230 90

Data from Monetary Times, Feb. 13, 1874, vol. 7, 799.




nature and notable for contracyclical currents originating in the agricultural segment of the economy. With the exception of a twelve-month period commencing in late 1874 when shipments fell sharply, and again from June 1876 through July 1877 when a more modest decline was recorded, grain and animal exports achieved historically high levels in both value and volume throughout the contraction. Separate specific cycles in the mid-seventies are also apparent in demand deposits and in the rate of change in the money supply, in the former series from a trough in August 1875 to a peak one year later, and in the latter case from a trough in May 1875 to a peak the following May. Countervailing tendencies in the economy are apparent in the behaviour of merchandise exports. The volume of exports reached a minimum in fiscal 1875, and the rise from this trough through 1881 was interrupted only in fiscal 1879 when volume declined by 1.4 per cent.19

The burden of the contraction was heaviest in the non-agricultural segment of the economy. Exports of forest products between fiscal 1874 and 1879 declined by 48 per cent in value and 44 per cent in volume. Urban building activity declined by almost 75 per cent between the cyclical peak in 1874 and the succeeding trough in 1880. - Lower turning points in the monthly series range from the August 1878

trough for total exports to a March 1880 trough for total bank loans. There are, however, a relatively large number of series that bottomed out in the first six months of 1879 as shown in the historical diffusion index of Chart 1, which by June had crossed the 50 per cent expanding line. Mid-1879 appears to be a reasonable reference trough.

The last phases of this contraction were painfully apparent to Canadian financial, industrial, and commercial interests despite the relatively early cyclical upswing in aggregate exports. In this respect the severity of the later stages of the decline in Canada contrasts with its mildness in the United States. Between September of 1878 and July of 1879 equity prices declined by one-fifth; during the first half of 1879 four banks failed; and for 1879 as a whole Dun, Wiman and Co., reported a business failure rate in Canada 32 times as great as in the United States. These developments coming after an already prolonged contraction seriously undermined confidence and contributed to the force of cumulative downward movements in economic activity. Doubt and hesitation may have been increased by uncertainties in late 1878 and early 1879 concerning implementation of the "National Policy" promised by the victorious Macdonald Conservatives in the election of 1878. It is probably correct to say that if the contraction entered Canada quite unobtru- sively, it left only after making an indelible impression.

Reference Dates in the Eighties Phases of cyclical expansion and contraction in the eighties stand out clearly

in the quantitative evidence. Measured from trough to trough the following cycles are apparent: 1879-85; 1885-88; 1888-91.

The expansion of 1879-82 was far from a smooth, continuous one. Separate

19Monthly data on export values reached a trough in April 1878, after which expanding agricultural and animal shipments more than offset reduced shipments of other merchandise.




cycles appear in a number of export series whose early 1880 peaks were followed by contractions of approximately twelve months. These distinct specific cycles are recorded in total exports and the main agricultural, animal, and non-agricultural components. If specific cycles as such were not present, there was nevertheless a levelling off in a number of other series. Imports reached a temporary plateau in the latter half of 1880; and there is a serious question of whether a specific cycle in the rate of change in the money supply should be recorded with a contraction lasting from the second quarter of 1880 to the second quarter of 1881.20

At the upper turning point in 1882, those series that characteristically lead cycles in aggregate activity had already reached specific cycle peaks in the twelve months commencing with May 1881. The index of stock prices "peaked" in May, the dollar liabilities of business failures and the rate of change in the money supply in November, and the value of total exports in April of 1882. The commodity price index reached a peak in June, and aggregate imports in August of 1882. The diffusion index declined below the 50 per cent expanding line in July. The qualitative evidence as revealed in the judgment of informed commentators is consistent with an upper turning point in the latter half of 1882. They suggest that the economic situation underwent a gradual transition between mid-1882 and early 1883.21

Like the preceding contraction this one also suggests circumstances in which recovery might have materialized but did not. Forest product exports recovered sharply between March and November of 1883, reaching a level almost equal to that at their cyclical peak, and then fell off sharply in 1884. Total exports after declining rapidly in 1883 recovered strongly between January and Octo- ber of 1884 as a result of improved agricultural and animal shipments. Similarly, total imports displayed an abortive revival between March and September of 1884. A brief recovery in common stock prices is evident between November 1883 and March 1884. Finally, the rate of change in the money supply recovered briefly between the final quarter of 1883 and the second quarter of 1884.

Contracyclical forces held this contraction to modest amplitude despite its duration. The Buckley index of urban building activity showed year-to-year gains of 12 and 22 per cent respectively in 1883 and 1884. Federal government gross investment in fiscal 1883 was the highest for any year in the nineteenth century and 42 per cent above the level of the previous year.22 Net capital formation in major steam railways reached the highest level in the century in fiscal 1884, slightly greater than the previous high of 1883. These amounts were 332 and 3 times as great respectively as net outlays in fiscal 1881.23

20R. Fels points to a hesitation of similar nature in the counterpart US expansion during the middle of 1880, American Business Cycles, 1865-1897 (Chapel Hill, 1959), 124.

21Cf. Bank of Nova Scotia, agency circulars, especially Circular 100, Nov. 30, 1882, Circulars 110 and 113, Feb. 5 and April 3, 1883, and the Thomas Fyshe Better Book, March 10, 1883; Monetary Times, June 23, 1882, vol. 15, 1574-5; vol. 16, 67, 403, 823, 1433; Canada, House of Commons Debates, 1883 Session, 332.

22Kenneth Buckley, "Historical Estimates of Migration and Investment in Canada," paper given at 1960 Conference on Statistics of the Canadian Political Science Association (mimeographed), 17.

23Ibid., 15.




The combined value of exports of agricultural and animal products reached a relatively early trough in January of 1884, reflecting principally the strength of demand for the latter. By the end of 1884 troughs had been reached in the dollar liabilities of business failures (May), the index of stock prices (July) and the rate of change in the money supply (August). In April 1885 the historical diffusion index exceeded the 50 per cent expanding level.

The cycle of 1885-88 apparently reached a peak during the first half of 1887. Most leading series had reached specific cycle peaks late in 1886 or early in 1887. The diffusion index fell below the 50 per cent line in March. This decline, lasting through early 1888, revealed some weakness in the banking structure.24 However, the contraction was relatively mild, characterized chiefly by the liquidation of inventories to more acceptable levels.25 Improvement in some indicators began late in 1887 and by March of 1888 the diffusion index exceeded the 50 per cent expanding mark.

There was an 1888-91 business cycle in Canada as in the United States.26 Seemingly its most noteworthy feature was competitive pressure on profit margins. Business failures in numbers and dollar liabilities, for example, were relatively high compared with their volume in both the 1879-82 and 1885-87 expansions.27 But establishing peak and trough reference dates is a difficult task, for countervailing tendencies were apparent. With respect to the leading series the rate of change in the money supply "peaked" in August of 1888, the inverted dollar liabilities of business failures one year later, and the index of stock prices in September 1889. Aggregate imports, usually a coincident series, turned early in November 1889, while the diffusion index fell below the 50 per cent line in October of 1890, though its behaviour through the earlier part of the year suggests a stand-off between contractionary influences and those favouring revival. There are serious problems in dating specific cycle peaks in the monthly and quarterly series during late 1889 and early 1890. Imports, for example, show a strong advance from June through October of 1890; the index of stock prices also shows a recovery between May and August of 1890. Some of the series have double peaks: non-agricultural exports has its first in August of 1889 and a second in October of 1890; in forest products the early peak occurs in the winter of 1889 and the second in July of 1890. A double peak is also apparent in the inverted series (overdue bank bills as a percentage

24During the contraction two banks failed: the Bank of London (August), and the Central Bank (November); the Federal Bank went into voluntary liquidation in January of 1888.

25Cf. the remarks of the general manager of the Bank of Montreal and the general manager of the Canadian Bank of Commerce at the respective banks' annual meetings in June of 1888 as found in the Monetary Times, June 22, 1888, vol. 21, 1519-1520 and 1578-1580.

261t is interesting to note the comment of Rendig Fels on the 1888-91 cycle in the United States. "The downswing was singularly mild, qualifying as no more than a recession. Elsewhere in the industrial world the contraction was so long and deep that (except for the U.S.) 1890 is generally counted as the peak of a major cycle. As the upturns of 1888 and 1891 were uniquely American, the cycle as a whole bears little resemblance to experience elsewhere." American Business Cycles 1865-1897, 159. The experience was really North American and not limited to the US.

27Business failures per 1,000 firms averaged 12 in 1880-82 and 17 in 1885-87, compared with almost 22 in 1889, and just over 22 in both 1890 and 1891. This was slightly above the rate of 20 in 1883 and 1884.




of total bank loans), the first in November of 1889 and the second in August of 1890. The procedure followed here is to take as the specific cycle peak the later of the two dates where absolute levels are approximately equal. Dating the reference trough is similarly difficult. The rate of change in the money supply turned up in August of 1889, inverted dollar liabilities in August of 1890 and the index of stock prices in December 1890. The diffusion index rose above the 50 per cent line in January of 1891 and imports reached a trough in March.28

Cyclical Movements of the Nineties The evidence establishes an 1891-94 cycle, but is less conclusive about

conditions from 1894 to 1897. The expansion of 1891-93 is clearly apparent in the business indicators

employed in this article. Virtually every monthly or annual series shared in this expansion, with the exception of the Buckley index of urban building activity which continued to decline from its 1889 peak and reflected the early phase of a downswing in the Canadian construction cycle.29 In this expansion agriculture must have played an important role. Not only did the volume and the value of agricultural exports exceed all previous records in fiscal 1892, but they were also 74 and 57 per cent higher respectively in volume and value than in the preceding year. Fiscal exports of animal products were approximately 6 per cent higher in both volume and value for the same comparative period.30

At the upper turning point there is good consensus among the series. Specific cycle peaks for the leading series are as follows: Rate of change in the money supply (November 1891); index of common stock prices (February 1893); dollar liabilities of business failures (February 1893); total exports (December 1892). Aggregate imports reached a peak in March 1893. A notable feature is the relatively rapid transition from expansion to contraction and its wide diffusion through the economy. Between February and April of 1893 the diffusion index fell from 77 to 31 per cent expanding. At the same time there is no evidence of the type of financial panic experienced in Australia, Italy, and the United States during the first half of 1893.31

25The general difficulties suggested above are well summarized in the following contemporary appraisal. "There has seldom been a year in which there was so much diversity; so much of light in one direction and shadow in another; a certain amount of money made in some quarters, and a large amount of money lost in other directions." Monetary Times, Dec. 26, 1890, vol. 24, 778. See also the address of the general manager, Merchants' Bank of Canada, 1891, Annual Meeting, June 17, 1891: "The present condition of business in The Dominion is very varied. There is prosperity-great prosperity-in some districts of the country, in some industries, and in some branches of trade; and the reverse in others." Monetary Times, June 19, 1891, vol. 24, 1554.

29Again, it is interesting to note the comment of Fels: "The business cycle that reached a peak in January 1893 and a trough in June 1894 was peculiar to the United States of America. For the rest of the industrial world, the Baring Crisis of 1890 marked the beginning of a protracted decline, which continued until the middle of the nineties." American Business Cycles, 1865-1897, 179.

3OTaylor and Michell, Statistical Contributions to Canadian Economic History, II, 39. 31In Canada, though there was only one bank failure (the Commercial Bank of Mani-

toba, a small institution conducting a marginal banking business), it is nevertheless clear that financial conditions in Canada felt the impact of the unsettling financial crises abroad. E. S. Clouston, general manager of the Bank of Montreal, summarized Canadian sensitivity to these monetary developments as follows: "Canada was more fortunate than most countries,




A lower turning point was probably reached in March 1894. The leading series had all moved upward by the end of 1893 with the exception of business failures which turned in the first quarter of 1894. The value of aggregate imports and exports reached troughs in February and March respectively, with the upswing in the latter paced by improved shipments of agricultural and animal products. Non-agricultural exports commenced a new cyclical expansion in August. The diffusion index, though it crossed the 50 per cent expanding line in April, moved very sluggishly throughout the 1894-95 upturn.

The National Bureau business cycle chronology reveals the difference between American and European cycle experience in the middle nineties. Unlike the American economy, the economies of Germany, Britain, and France reached respective cyclical peaks in January and September of 1890, and in January of 1891, with each experiencing a protracted decline that extended through the first two months of 1895. The ensuing European cyclical expansion continued until the middle of 1900. Our present knowledge indicates that the 1894-97 cycle is limited to the United States, but in examining Canadian experience three possible interpretations of the 1894-97 period suggest them- selves. One is to regard 1894-96 as a cycle in its own right with an incomplete expansion culminating in the latter part of 1895, followed by a very short and moderate contraction ending in the middle of 1896. Alternatively one might treat the expansion from the 1894 trough as a lengthy one, moving haltingly in its early stages, but gaining momentum after 1897 under the favourable impact of a joint American and European cyclical upswing that reached an upper turning point at the beginning of the century. A third possible hypothesis is to regard the entire 1893-96 period as one of prolonged contraction in business activity, though this position seems untenable in the light of the evidence assembled here.

Let us examine the first two possibilities. Table I indicates that a reasonably wide range of industrial segments probably participated in the expansion of 1894-95.32 Bank clearings also rose cyclically. Urban building activity increased by about 332 per cent in 1895 but remained at only slightly more than one half of the peak volume reached in 1889. Hide, grain, and flour prices improved markedly from the fall of 1894 through the middle of 1895, although the beneficial effects on the flow of agricultural income were limited by the poor grain harvest of 1894.3 Nevertheless, there were constant references in the

but though she escaped without any serious crisis, she had her troubles, and heavy specula- tive losses were made by the more adventurous of the community. . . I regret to say that the real danger to Canada last summer was the unsatisfactory condition of the cash reserves of some of the banks. They were weak even for normal periods, but in the delicate and difficult period I refer to, they were a source of danger and peril to Canada. Had the slightest run occurred at this time, I am afraid our much vaunted system would have fared no better than others.", Proceedings of the Annual Meeting of the Bank of Montreal, June 4, 1894, reprinted in Monetary Times, June 8, 1894, vol. 27, 1544.

32See also Monetary Times, April 19, 1895, vol. 28, 1356. 33Between September 1894 and June 1895 the monthly average quotations in the Toronto

market for wheat was as follows: September 1894 June 1895

Winterwheat (bu.) 510 95.50 Manitoba hard (bu.) 620 $1.025

Figures are from Monetary Times, April 5, 1895, vol. 28, 1294 and Jan. 8, 1897, vol. 30, 911. Between June and December 1895 prices declined by one-third.




financial press to the highly competitive situation in a wide range of manufacturing, trade, and service industries. There seems little doubt that the expansion during the balance of 1894 and into 1895 was spotty and incomplete.

To assist in evaluating these alternatives one may examine series reaching specific cycle peaks during this expansion in order to account for the decline in the diffusion index in the latter part of 1895. Three leading indicators-the rate of change in the money supply, the common stock index, and the dollar liabilities of business failures-reached peaks in May and October of 1894 and May 1895, respectively. Other indicators in Table I reached peaks as follows:

Animal exports, value June 1895 Overdue bank notes and bills June 1895 Demand deposits July 1895 Exports of manufactures, value January 1896 Value of imports January 1896

At the same time there were a number of series which continued to experience cyclical expansion throughout 1896 and into 1897. These included bank loans, total exports, and some of its major components, including the combined value of agricultural and animal shipments, and total non-agricultural exports, the latter reflecting an expansion in mineral and forest product sales.84 Bank loans, however, did reach a cyclical peak in January 1897 displaying the charac- teristic lag at turning points. Commodity prices declined from their 1893 peak through a trough in October 1896. If bank loans are accepted as a lagging indicator and one acknowledges the weakness in commodity prices, then no monthly or quarterly series that directly measures some facet of domestic conditions failed to record an 1895-96 cyclical peak. What of the time sequence of specific cycle troughs in 1896? Troughs in the rate of change in the money supply and the dollar liabilities of business failures were reached in the first quarter of 1896. The indices of common stocks and commodity prices reached bottom in August and November respectively. Two other series-overdue bank bills and notes and demand deposits-on this occasion reached early troughs in March and April. Total imports did not reach a turning point until December. The export series recording cyclical peaks in 1895 had matching troughs as follows:

Animal products July 1896 Manufactures January 1897

The diffusion index grew weaker in the first half of 1895, fell to 54 per cent expanding in July, remained at that level through January 1896 and declined to 46 per cent in February. In contrast, the index displayed a strong recovery from this low point through the balance of 1896. But on this occasion the diffusion index is a less incisive tool of evaluation. Informed contemporary comments (which in the absence of additional data must here receive greater

34Forest product shipments after reaching a trough in March, 1895, experienced specific cycle expansion through April, 1897. Depressed conditions in the American market for lumber were more than balanced by the expansion in UK shipments associated with the rising phase of a long cycle in residential construction in the middle and late nineties. Cf. B. Weber, "A New Index of Residential Construction and Long Cycles in House- Building in Great Britain, 1838-1950," Scottish Journal of Political Economy, 1955, 104-32.




stress) emphasize both increasing dullness in business during 1896 and the retarded pace of economic growth during the middle nineties.35

In attempting to use the diffusion index to locate and interpret this trough, one encounters a recognized limitation of the measure; it cannot evaluate the degree of strength in a cyclical expansion in the absence of analyses of the behaviour of component series. The latter indicate that the relatively rapid upswing in the index during 1896 reflects but weak cyclical expansions in a number of components. For example, liabilities of business failures after improving sharply in the second quarter of 1896 from their first quarter cyclical low deteriorated seriously in the third quarter. Overdue bank bills as a percentage of bank loans reached a cyclical trough in March of 1896 and improved cyclically through September, but then the advance was interrupted and reversed until May of 1897 when a relatively sharp improvement commenced. The rate of change in the money supply advanced comparatively slowly on this occasion from its trough in the second quarter of 1896 through the second quarter of 1897. The index of stock prices moved sluggishly upward from November of 1896 through May of 1897. Imports did not reach a trough until December 1896. Further, urban building activity (not in the diffusion index) fell in 1896 to its lowest level in the decade, approximately 16 per cent below the cyclical high of 1895.

The diffusion index also shows strength because most export series did not complete their expansion from the trough in 1894 until well into 1897 and the first months of 1898. However, an examination of month-to-month seasonally adjusted movements in individual export series during 1896 indicates that the rate of shipments for aggregate exports and its major components displayed an extended pause in their cyclical advance. Total exports, for example, moved moderately upwards in the first quarter of 1896, achieved a maximum rate for the year in the second quarter, and levelled off in the latter half of the year. Exports then rose abruptly once again in the first half of 1897. The seasonally adjusted annual rate of exports in the second quarter of 1897 was about one- fifth above the plateau of the latter part of 1896 with the advance reflecting strength in all major components-agricultural and animal, forest products, manufactures, and minerals.

After weighing the evidence my conclusion is that 1894-96 should be regarded as a separate cycle, not as the early part of a lengthy post-1894 expansion, nor as the extended tail of an 1893-96 contraction. It is also apparent that the lower turning point will remain obscure in the absence of further evidence.

The diffusion index shows substantial weakness throughout much of 1897, but as already suggested this reflects specific cycles in selected export series and in total bank loans rather than in a wide range of direct measures of domestic activity. There is nothing in the composition of this hesitation to suggest a reference cycle.

35"The universal cry that comes up from business circles in all directions, in almost all places, is of continued and most monotonous dullness. This condition of things settled down upon the country months ago and has continued ever since with blighting effects upon trade and industry, until the condition has become almost unbearable." Monetary Times, March 26, 1897, vol. 30, 1278.




TABLE II CANADIAN, US AND UK REFERENCE CYCLE DATES AND THEIR TIME RELATION, 1872-1897

Lead(-) or lag(+) in months ot Canadian reference date

to comparable date

Canada US UK US UK

Peak Nov. 1873 Oct. 1873 Sept. 1872 + 1 +15 Trough May 1879 March 1879 June 1879 + 2 - 1 Peak July 1882 March 1882 Dec. 1882 + 4 - 5 Trough March 1885 May 1885 June 1886 - 2 -16 Peak Feb. 1887 March 1887 * - 1 * Trough Feb. 1888 April 1888 * -2 * Peak July 1890 July 1890 Sept. 1890 0 - 2 Trough March 1891 May 1891 * -2 * Peak Feb. 1893 Jan. 1893 * + 1 * Trough March 1894 June 1894 Feb. 1895 - 3 -12 Peak Aug. 1895 Dec. 1895 * - 4 * Trough Aug. 1896 June 1897 * -11 *

*No comparable reference dates. Entire period: Comparison with the U.S.

Number of coincident Canadian activity turns 1 Number of peaks with Canadian lag 3 Number of peaks with Canadian lead 2 Number of peaks with no Canadian lead or lag 1 Number of troughs with Canadian lag 1 Number of troughs with Canadian lead 5 Number of troughs with no Canadian lead or lag 0

SOURCE: US and UK reference dates from Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles (New York, 1946), 78-9.

TENTATIVE REFERENCE DATES

Tentative reference cycle dates for the last quarter of the nineteenth century are placed in Table II beside NBER dates for the United States and the United Kingdom. In the Canadian case they match the 50 per cent points in the diffusion index rather closely. The peaks about which the greatest degree of uncertainty exists are those of November 1873, July 1890, and August 1895. The more uncertain trough dates are March 1891 and August of 1896. Since the evidence on which these dates were established is less than one can be comfortable with, interpretations are hazardous. The selection of specific cycle peaks and troughs is not usually an "either-or" matter; seasonally adjusted series are often saw-toothed, characterized frequently by double peaks (e.g., the 1889-90 peaks above) or alternatively by leptokurtic peaks; similarly, troughs may be either broadly saucered or double-cupped. Moreover, a slight shift in the technique of seasonal adjustment may alter a turning point by several months. To illustrate, consider the problem of selecting the 1896 trough. A number of time series in this instance have double troughs, though in each instance the level of the second trough is slightly above that of the first. Yet if the second rather than the first had been selected as the specific trouLgh then the entire complexion of the diffusion index would be altered. No upturn above the 50 per cent expanding zone would become evident until the spring of 1897, and o-u;r reference trough would be shifted to a later date by from six to nine moniths.

With these adnmonitions, the following generalizations may be suggested.




One feature of Table II is the generally close coincidence, even before the turn of the century, between cyclical turning points in Canada and those in the United States. In this early period of national development there is no evidence to support the assumption of a consistent Canadian lag at business cycle turning points. Of the twelve tentative reference dates no less than eight (four peaks and four troughs) are within a two-month zone of coincidence with their American counterparts. Given any reasonable margin of error in the reference dates one may still discern a high degree of concomitance between dates in the two countries. In contrast, Canadian cycles fail to show close association in timing with those in the United Kingdom. The minor cycles of 1885-88, 1888-91, and 1894-96 are present in Canada but absent in the United Kingdom. Only where one can speak of a North Atlantic business cycle, as in the seventies and the early eighties, can one find a meaningful time relation between cyclical change in Canada and the United Kingdom. In the major cycle of the nineties the timing of the Canadian experience more closely resembles the American than the British.

The results of this analysis provide some insights into the economic development of the late nineteenth century. They suggest both the importance of the market as an allocator of resources and a close interdependence between the North American economies. Assuming that synchronization of business cycle phases is at least some rough guide to economic linkage, it is instructive to observe the degree of association revealed between American and Canadian expansions and contractions in this early period.

SOME MEASURES OF CYCLICAL AMPLITUDE

The past may be linked with the present not only by comparisons of the time sequence of business cycle expansions and contractions, but also by com-

TABLE III SELECTED MEASURES OF CYCLICAL AMPLITUDE, 1875-1939

Per cent of intracycle average values Ampli- Ampli- Ampli-

tude tude tude full Series Ti P Tt expansion contr. cycle

(1) Aggregate Imports (a) 13 Cycles: 1879-1939 76.6 124.4 89.6 47.8 34.8 82.6 (b) 5 Cycles: 1879-1896 81.9 111.7 91.8 28.6 19.9 49.5 (c) 4 Cycles: 1896-1915 71.5 131.9 101.5 60.6 30.3 90.9

(2) Aggregate Exports (a) 13 Cycles: 1878-1939 81.6 1:26.8 94.6 45.2 32.2 77.4 (b) 6 Cycles: 1878-1898 86.9 119.8 99.0 32.9 20.8 53.7 (c) 4 Cycles: 1898-1914 75.8 130.1 98.3 54.3 31.8 86.1

(3) Non-agricultural Exports* (a) 13 Cycles: 1879-1939 77.6 124.8 93.2 47.2 31.6 78.8 (b) 5 Cycles: 1879-1898 75.3 123.2 93.2 47.9 30.0 77.9 (c) 3 Cycles: 1898-1911 72.4 120.7 98.6 48.3 22.1 70.4

*The non-agricultural exports series are not strictly similar throughout these years. For the period 1879 to 1911 see Appendix; for the years 1919 to 1939 the series includes the following groups in the post-1920 classification for meichandise trade adopted by the Dominion Bureau of Statistics: fibres and textiles, wood, wood products and paper, iron and steel and their products, non-ferroLis metals and their products, non-metallic minerals and their products, chemicals and allied products, miscellan-eous.




puting amplitude measures for expansions, contractions, and full cycles in order to obtain a profile of typical cyclical patterns in some representative series. Measures of amplitude have at least one advantage over timing comparisons; identification errors are less likely to enter the calculations. To measure amplitude we switch from reference to specific cycle turning points.

Table Ill summarizes these amplitudes for three time series covering the period from 1875 through 1939. Amplitudes for the entire period are compared with those representing the last quarter of the nineteenth century for aggregate imports, aggregate exports, and non-agricultural exports (all series in current dollars). Since much interest attaches to pre- and post-1900 years because of the suggested contrasts in Canadian economic fortunes that they display, cyclical amplitudes were also computed for the latter period. The measures of amplitude were computed as follows: (a) find three-month averages centred on the initial trough, the peak, and the terminal trough; (b) find the average intracycle (trough to trough) value of each series; (c) express the three-month moving averages for the peak and the initial and terminal troughs as per- centages of the intracycle average value; (d) express the amplitude of expansion as the difference between the relative intracycle standing at the peak and that at the initial trough; (e) express the amplitude of contraction as the difference between relative standing at the peak and the terminal trough; (f ) express the amplitude of the full cycle as the sum of the percentage differences.

If we compare the pre-1900 years with the entire period 1875-1939, the results indicate that in the case of two series-aggregate imports and exports- cyclical amplitude of expansion, contraction, and the full cycle was markedly less in the last quarter of the nineteenth century. In the subperiod expansions were less pronounced and contractions were more modest, in both instances approximating two-fifths of the typical amplitude for the entire period. How- ever, in the case of non-agricultural exports, there is no apparent difference between the typical cycle in the 1879-98 subperiod and for the six decades taken as a whole. Cyclical amplitudes during the wheat boom, on the other hand, yield a different result when compared with the over-all pattern. In the case of aggregate imports and exports expansions were somewhat sharper during the subperiod while contractions fairly closely approximated the long- run average pattern; in the case of non-agricultural exports, expansions had remarkably similar amplitudes during the subperiod, though between 1898 and 1911 contractions were more modest.36

36The series used for comparison contain changes in both price and volume. More desirable measures would be series whose movements result from changes in volume only, but monthly price series that permit the necessary deflation are not available. The question then arises whether the presence of diverse secular trends in prices during the subperiod introduces a sufficient degree of bias to cloud interpretation. In the case of imports the Taylor price index (Statistical Contributions to Canadian Economic History, I, 16-19) declines by 24 per cent between 1879 and 1897, and rises by 34 per cent between 1897 and 1914. Certainly the first period is characterized by a secular decline, the second by a secular rise in prices. It is impossible to state precisely what the cyclical impact of this price behaviour was in the absence of more detailed analysis of price movements within each cycle. However, it is not unreasonable to assert that the direct statistical effect on the value series of the downward drift of prices in the first subperiod would be to dampen the




TABLE IV

AMPLITUDE RANK OF CYCLICAL CONTRACTIONS AND SUCCEEDING EXPANSIONS IN AGGREGATE IMPORTS, 1882-1939

Contraction Succeeding expansion

Amplitude rank Amplitude rank Time phase of contraction Time phase of expansion

4/1929- 4/1933 1 4/1933- 9/1937 2 6/1920- 6/1921 2 6/1921- 6/1923 8 7/1907- 6/1908 3 6/1908- 2/1913 1 3/1893- 2/1894 4 2/1894- 1/8961 7 8/1882- 8/1885 5 8/1885- 8/1887 9 6/1923- 8/1924 6 8/1924- 4/1929 4 1/1896-12/1896 7 12/1896-11/1899 3 6/1903- 1/1904 8 1/1904- 7/1907 5

11/1899- 6/1900 9 6/1900- 6/1903 6 11/1889- 3/1891 10 3/1891- 3/1893 11 3/1887- 3/1888 11 3/1888-11/1889 10

"rank = +.52. The contractions of 2/1913-5/1915 and 9/1937 to 4/1939 are omitted.

Is the amplitude of expansion related systematically to the severity of the preceding contraction? We test for this in Table IV by matching specific cycle expansions and contractions in imports. Contractions are ranked from most to least severe and matched with succeeding expansions (excluding those occurring in wartime). The Spearman rank correlation coefficient is +.5 indicating the presence of a weak positive relation. We may note that of the pre-1900 cyclical phases both the 1893-94 and 1882-85 contractions rank in the upper half of the list while the 1889-91 and 1887-88 declines are at the bottom. It is the extremely moderate magnitude of the latter that largely explains the difference between amplitudes in the nineteenth century and those experienced over the entire period.

CONCLUDING COMMENTS

The principal findings of this study lend support to a view of the Canadian economy as being peripheral, more nearly attached to the United States than to Western Europe. The evidence is similarity in the timing of cyclical expansions and contractions in Canada and the United States. There was also, apparently, rough correspondence in the amplitude of cyclical changes. The declines of the seventies and the difficulties of the nineties were relatively severe in both countries. The 1882-85 decline was probably less severe in Canada than in the United States, while the contractions of 1887-88 and

amplitude of expansions and magnify that of contractions, while with the upward drift during 1897-1914 the opposite effect should be expected.

In the case of aggregate exports there was no secular trend either up or down in the first period but rather expansion from 1879 through 1883, followed by decline through 1886, then renewed increase through 1891, succeeded by a prolonged decline through 1897 (all dates are fiscal years). In contrast there was an unmistakable secular rise of 39 per cent in 1897 to 1910. Export prices weakened slightly in the four years prior to the outbreak of the war.

The Taylor series show the export prices of non-agricultural commodities displaying much greater strength in the 1879-97 period than export prices generally, though after 1897 with the exception of wood products they lack the same upward movement charac- teristic of export prices generally.




1890-91 were moderate in both countries. Nothing in the study contradicts the analytical usefulness of treating Canada as a regional unit within a large and expanding North American economy.

The author-like Breckenridge decades ago-is impressed with the relative monetary and financial stability evidenced in Canada. Crises recurred regu- larly in the United States throughout the late nineteenth century while the banking collapse of the early nineties was international in character. There was no uncertainty in Canada about the nature of the monetary unit; there were no Canadian banking collapses resembling those of the seventies, eighties, and nineties in the United States; there was no financial catastrophe in Canada in the early nineties to match those in England and Continental Europe. The stable nature of the Canadian system is indicated by reports in the annals of large movements of bank deposits from American to Canadian banks during periods of financial crisis in the United States. Since the Cana- dian monetary and banking system was an institutional source of stability during the period two additional forms of uncertainty could be avoided: (a) the uncertainty that an unstable banking system could exert upon demand schedules for private investment; and (b) the uncertainty that a disputed monetary standard could exercise upon the balance of payments. This study points to the need for an evaluation of the influence of the Canadian monetary and financial system both on business cycles and on the secular economic development of this period.

Much attention had been paid to the export sector as a carrier of change in the Canadian economy. Three points about merchandise exports during this period merit attention. In the first place, judged by specific cycle movements, the agricultural sector exerted an important contracyclical influence in the late seventies, and again in 1884-85 when favourable developments in foreign shipments of Canadian produce must have moderated domestic declines in income. Agriculture was an important factor in the cyclical expansion of the early nineties; it contributed to recovery from the 1893-94 decline; indeed grain shipments displayed strength throughout the middle nineties, helping to offset fairly widespread domestic weakness. Secondly, exports of minerals and manufactures rose rapidly during the eighties and nineties, but their magnitude was so small that it is difficult to regard them as dynamic factors in Canadian development at this time. Thirdly, the rapid growth in exports of animal and animal product shipments should be noted; the volume of these exports represented a sizable percentage of total merchandise shipments. Growth in the dairy and cattle industries may be viewed as part of a funda- mental restructuring of central Canadian agriculture in this era, brought about by the settlement of more productive grain growing areas in the American west, by opportunities created through decline of the British dairy industry, and by the increasing size of domestic markets occasioned by accelerated urbanization in central Canada. Analysis of the magnitude and composition of inputs and the nature of backward and forward linkages in the production functions for dairying and the cattle industry is required to determine more clearly the role that these activities played in the economic development of the period.




One of the most important matters raised by the analysis is whether systematic analysis of domestic developments is a prerequisite to a more sophisticated interpretation of business fluctuations in this period. A number of domestic structural changes are especially interesting for the problem at hand. These include the reorganization of central Canadian agriculture; the increased urban concentration of the population and the labour force; the rise of a fairly wide range of secondary manufacturing; and the striking growth of tertiary industries. The latter three were associated with significant alterations in the spatial distribution of productive activity. The relation of these changes to cyclical movements warrants further investigation.

APPENDIX

Monthly Series Total merchandise exports and its components and aggregate merchandise imports

were published monthly in the Canada Gazette of the Minister of Customs from 1875 through 1895. After 1895 and through World War I these monthly figures appear in the annual reports of the Department of Trade and Commerce. Exports were valued at the actual cost at the time and point of consignment for export. Imports in Canadian statistics are valued in the country from which the goods are consigned to Canada at the market prices in the principal home country markets at the time of export. When import data were compiled and released by the ministers of Customs and Trade and Commerce, they were so valued in their Canadian monetary equivalent. An effort to construct consistent monthly series of disaggregated imports had to be abandoned, principally because all "free goods" (those not subject to tariff) were lumped together. Changes in the tariff schedules during the era make even a consistent monthly series covering free goods impossible. The working papers from which the releases were drawn have apparently been destroyed.

The index of common stock values is composed of the stock of eight chartered banks: Canadian Bank of Commerce, Union Bank, Quebec Bank, Merchants' Bank, Bank of Toronto, Molson's Bank, Bank of Ontario, and the Bank of Montreal. Price quotations were obtained from the ledger sheets of the Montreal Stock Exchange for transactions occurring on the 7th and the 21st of each month from 1868 through 1900. If no transaction occurred on these days the nearest sales in point of time were used. These prices were averaged to obtain the prevailing price for each month. The index was weighted by the number of shares of common stock outstanding.

The monthly index was constructed according to the following formula: Lt= (EPtqt)/(EP0q0)

where Lt is the index in month t, and Pt and qt are the price per share and number of shares outstanding in t. The base 1873 = 100 was employed. On the question of constructing indexes of stock market prices see Robert W. Stover, "A Critical Evalua- tion of Stock Market Indexes," American Statistical Association Proceedings, 1959, Business and Economic Statistics Section, 27-44.

The money supply is defined as notes in circulation plus total deposits by the public in Canada. These series are found in C. A. Curtis, Statistical Contributions to Canadian Economic History, vol. I (Toronto, 1931), 20 and 24. The composite series does not include deposits in the Post Office Savings Bank. Total bank loans, demand deposits, and overdue bank notes and bills are found in the same source, pp. 22, 50, 56 and 57. Those series were all constructed from the monthly returns made by the chartered banks to the Dominion government.

The commodity price index covering 35 items (1900 100) is found in K. W.




Taylor and H. Michell, Statistical Contributions to Canadian Economic History, vol. II (Toronto, 1931), 57. The index constructed by Michell is a geometric mean of price relatives with the original price quotations derived from the Monetary Times supplemented principally by the Toronto Globe.

All the preceding monthly series except the index of common stock values were seasonally adjusted by the Bureau of Labor Statistics method outlined in Morton S. Raff and Robert L. Stein, "New Seasonal Adjustment Factors for Labor Force Components," Monthly Labor Review, Aug. 1960, 822-7.

Qtuarterly Series The rate of change in the money supplied is derived by taking the quarter-to-

quarter change in the trend-cycle component of notes in circulation and total deposits by the public in Canada. Changes are measured from the middle month of each quarter to the middle month of the succeeding quarter.

The dollar liabilities of business failures are obtained from the Monetary Times of the period which carried regular reports of basic failure statistics from Bradstreet's and Dun, Wiman Co. The failure statistics for 1893 present special difficulties. Published failure statistics for the whole year are the same as those released for the first nine months of 1893. It was assumed that failure statistics in the final quarter were never compiled. Accordingly an adjustment was made to published data; final quarter estimates were made by extrapolating the total for the first three on the basis of the average relationship of failures in the final quarter to these in the first three during the 1890-96 period. The raw figures were then seasonally adjutsted.

Annual Series Business failures per 1,000 firms listed were obtained from the files of the economic

research unit of Dun and Bradstreet. Imports of iron and its products in current value and at 1900 prices are found in

Statistical Contributions to Canadian Economic History, I, 24-9. The index of urban building activity is contained in K. A. H. Buckley, "Urban

Building and Real Estate Fluctuations in Canada," this JOURNAL, Feb., 1952, 41-62.



late nineteenth century business cycles in canada

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