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. 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.

Post-war balance of payments problems are partly the results of policy applications of the “modern view” of the balancing mechanism of international trade theory. Derived from the Keynesian income-expenditure theory of income determination, the “modern view” relegates the role of the stock of money to a secondary place in determining national income. It asserts that control of the stock of money through monetary policy is incapable of significantly, or dependably, influencing the circular flow of income and thereby the balance of payments. One reason for this view is the conviction that monetary velocity behaves in an erratic and unpredictable manner. In contrast, pre-Keynesian theory attributed a central role to the stock of money, and so to monetary policy, in the balancing mechanism of international trade. It contained an explicit acceptance of the quantity theory of money which argues, among other things, that monetary velocity does behave in a predictable manner.

The usefulness of the modern view of the balancing mechanism of international trade turns partly on the relative stability and behaviour of monetary velocity on the one hand and of the Keynesian investment multiplier on the other. In all countries, but particularly in those that are sensitive to external disturbances, the balancing mechanism of international trade is an issue of vital concern for public policy. The purpose of this paper is to examine the relative stability and behaviour of monetary velocity and of the investment multiplier in an open economy that is subject to external disturbances and in which international trade plays a relatively important role in aggregate output and income. The article deals with the Canadian economy during the period 1926–58.

In the Western world economic planning refers to various forms of programming the economic activity of a country under government initiative and supervision. Economic planning is thus more than government intervention; it requires the participation, on a voluntary basis, of private economic agents and governments at various levels. It works more or less through market mechanisms and essentially implies an interaction in the formulation of plans between individual economic agents on the one hand, and governments on the other.

Economic planning has two major economic effects:

1. It reduces uncertainty by making forecasts about economic conditions and by providing market information (market conditions, prospects, expected behaviour of economic agents, etc.). These forecasts are more or less detailed and are made public. This aspect of planning we call the information effect.

2. It modifies the content of economic decisions both in private and public sectors either because new goals of economic policy are formulated and accepted, or because government intervention acquires a new dimension. The result is a change in the economic structure of the country. This aspect of planning, the intervention effect, is not discussed in the present paper.

In his celebrated book, Money, Interest and Prices, Professor Patinkin took the position that an individual's demand for nominal balances was not homogeneous of the first degree in the absolute level of prices. His analysis, based on concepts of inferiority and superiority with respect to real cash balances, failed to distinguish between short-period transition and long-period equilibrium. For this failure, Patinkin was taken to task by Archibald and Lipsey, who, while accepting Patinkin's assumptions, showed that as between alternative positions of long-period equilibrium when the actual stock of real balances is equal to the desired stock, a doubling of the price level does, in fact, double the nominal quantity of cash balances demanded, thereby validating the classical position.

My primary purpose is to show that it is unnecessary to assume, as do Patinkin and his critics, a unique relation between the desired stock of balances and the flow of commodities. This stock-flow equilibrium should not be assumed, but rather can be deduced, as is done in capital theory, from initial assumptions. Indeed, the accumulation of cash balances to attain a long-run equilibrium level is properly treated as an aspect of the theory of capital accumulation. Specifically, if we assume that real cash balances have positive carrying costs and that the rate of time preference is zero, we can show that an individual in long-run equilibrium will hold the satiety level of cash balances and that the equilibrium is unique and stable.

A policy or institution is often objected to on the ground that it interferes with freedom. Yet even where a policy is shown to have certain effects, it is frequently far from clear whether these effects constitute a diminution of freedom. To clear up the matter, many thinkers have tried to elucidate “the meaning of freedom.” Most who have made such an attempt have missed the mark through including within “the meaning of freedom” other things which they regard as desirable besides freedom itself. It is notorious that many who attempt to say what art is tell us only what they regard as good art. Many who try to define “law” fail to give an account applicable to bad laws as well as good laws. Recently a few attempts have been made to avoid this sort of pitfall in elucidating what is meant by the familiar word “freedom.” The latest and most ambitious attempt at this is made by F. E. Oppenheim in his book Dimensions of Freedom.

If a man has freedom, he is free. Yet if someone is not free on a certain evening, we should not say on that account that he is lacking freedom. “Freedom” is not simply the substantive corresponding to the adjective “free,” as “redness” corresponds to “red.” We speak of a room as being free of dust, of a lawn as free of weeds, of milk as free of impurities. The adjective “free” is applicable in many contexts in which the substantive “freedom” is not. Freedom is literally asserted only of human beings, whether singly or in groups. When applied elsewhere, as in speaking of a tiger recovering its freedom or “freedom of the will,” it is used only metaphorically, on analogy to its literal use. Yet “freedom” is clearly also not the substantive that corresponds to the adjective “free” whenever this adjective is applied to human beings.