THE GROWTH OF THE CANADIAN FEDERAL DEBT SINCE CONFEDERATION, 1867-1949

Abstract

To attempt a comprehensive survey of the development and main problems of the Canadian federal debt may seem overly ambitious in the necessarily short span of an undergraduate thesis. But heated conflict over principles of fiscal policy which by and large determine the growth of the debt, and a more general lack of information on particular Canadian problems relating to it, make even a summary survey of some value: and this is all the more true in the absence of any great amount of literature on the subject. Canada's net debt of some eleven and one-half billions of dollars may be just another example of governmental inefficiency to the steelworker; the small businessman may think of it only in terms' of the larger taxes he must pay to take-care of the interest charges; and a financier, willing enough to accept past debt growth as an essential antecedent to Canadian national development; maybe just as unalterably opposed to any further growth. The fact that all these men lack a "rounded Approach'" to fiscal and debt policy is important. As voters, they determine the party in power in Ottawa, and so indirectly, the course of Canadian public finance. But more than a lack of knowledge or apathy on the part of the citizens justifies an attempt to treat some first principles; three trends, forming a significant part of the contimporary political scene, urge knowledge of federal fiscal policy, especially as it relates to the public debt. In the first place, the years since Confederation have seen a tremendous increase in the absolute size of the debt. The consequent growth of the interest charges, which form the real "burden of the debt", has proceeded at only a slightly slower rate. Were the national income to slump again as it did in the early thirties, it would prove even more of a strain on the economy to take care of the interest charges than it did then. We may very properly take an interest in the largest single item in the federal budget, especially one which can cause so much difficulty. Secondly, the present trend in the government towards what may be called an economy of "welfare capitalism" is a costly process. The increase in the debt that this may entail is worthy of careful study. Thirdly, the increasing favour with which fiscal policy called for chronic government deficits is viewed calls for a searching review of the economic reasoning that lies behind it, in the light of the continuing increases in the debt that it may cause. No attempt has been made to carry the topic beyond the bounds of the federal debt. The public debt of the various provinces and municipalities is both extensive and of complex structure, worthy of a separate study in itself; but it is not nearly so important in the aggregate, as the federal debt. Moreover, the limitations of space would prevent an adequate treatment of any part of the public debt, should we attempt to deal with them all at once. It seems both fair and reasonable, therefore, to confine the topic to the most important segment of the public debt, and deal exclusively with the Canadian federal debt. Whenever the phrase "the public debt" is used in the text for brevity, or to avoid monotony, it should be remembered that it is to this particular portion of it that we refer. Finally, all attempts at justification and apology aside, the author wishes to express his gratitude to those who so generously aided the completion of this work. To Dr. R.C.McIvor, of the Department of Political Economy, his thanks are due for much patient review of the rough manuscript, and far many helpful suggestions. The searching comments of his colleagues in the Honour Course, and especially of Miss Willa Harwood and Mr. John Panabaker, not infrequently spurred him on. Responsibility for the final version, must of course, be accepted by the author alone.