Canadian economy during the First World War

The Canadian government was unprepared for the First World War. Key departments of the public service – Finance, Justice, Trade and Commerce, and Labour – each had fewer than one hundred employees as late as March 1915. Small arms (the Ross rifle) were manufactured in Canada but there was no capacity, or manpower, to produce heavy armaments. A much-touted war book, quickly implemented, barely hinted at what a government at war needed to do. But by Sunday, 9 August the basic orders in council had been proclaimed, and a war session of parliament opened just two weeks after the conflict began. Legislation was quickly passed to secure the nation’s financial institutions and raise tariff duties on some high-demand consumer items. The War Measures Bill, giving the government extraordinary powers of coercion over Canadians, was rushed through three readings. Finally, the Canadian Patriotic Fund was set up to assume responsibility for assistance to the families of soldiers. With complete support from the opposition Liberals under Sir Wilfrid Laurier, the government’s war legislation was in place in just five days.

By the middle of 1916 the war effort in factory and field was running at full capacity and labour shortages were appearing on production lines and farmsteads alike. By then, too, the reality of a war of attrition had been grasped. Potential recruits had a choice not open to many in 1914 and early 1915 when unemployment had reached serious levels: there was a very dangerous job available at $1.10 a day in France and another at unprecedented wages in the home-front war economy. By July 1916 the seemingly endless flow of recruits had become a mere trickle. The days of volunteerism were over.

The government’s approach to the war effort at home paralleled the volunteerism of military recruiting. Worried that an already troubled economy might collapse because of “uncertain conditions,” Borden and Minister of Finance William Thomas White had opted for “business as usual.” In 1915 White rejected calls for direct taxation. It would cost too much to implement, he said, and would intrude upon a tax field traditionally used by the provinces. After the London market closed at the end of 1914, White, reluctantly and complaining about the high rates charged, turned to New York for bond issues in 1915, 1916, and 1917. He did not believe that the Canadian market was big enough to sell major issues. But a very tentative offering of $50 million in 1915, spurred by the escalating costs of the war, was doubly subscribed. Much larger issues in 1916 and 1917 were equally successful, and a Victory Loan of $300 million in 1918 brought in $660 million. In the manufacturing sector the Shell Committee vied for munitions orders from the Allied governments. The Canadian government’s contracts for the many needs of its soldiers were dispersed by Militia and Defence and other departments in the partisan ways that had been practised for decades. Minor scandals in early 1915 persuaded Borden to set up the War Purchasing Commission under Edward Kemp, now minister without portfolio. It took over the contracting for Canada’s military expenditures and for all British and Allied orders for war supplies except munitions. Scandals also struck the Shell Committee, and in November 1915 it was shut down and replaced, as contractor for munitions, by the Imperial Munitions Board (IMB) under the leadership of Joseph Flavelle.

These were the first manifestations of change. Others followed as war production in the factories and on the farms of Canada began to grow. In response to an urgent need for foodstuffs in Europe, Borden’s government commandeered the 1915 wheat crop. In 1917 skyrocketing prices led to the establishment of the Board of Grain Supervisors of Canada, which took marketing of the crops of 1917 and 1918 away from the private grain companies. It was succeeded by the Canadian Wheat Board with the same mandate for the 1919 crop. Also in 1917, a food controller, William John Hanna, was appointed to regulate the production and distribution of Canada’s food supplies, and a fuel controller, Charles Alexander Magrath, was given the power to regulate the distribution and price of fuels and the wages of coalminers in Alberta and Nova Scotia. A year earlier, responding to increasing concern about war profiteering by Canada’s businesses, Borden and White had reversed themselves on the tax issue and imposed the nation’s first direct impost, the business profits war tax. It was politically motivated. So too was the income war tax, grudgingly introduced by White in 1917 as a companion to the Military Service Act, ostensibly to conscript the excesses of the nation’s wealth to match the forced enlistment for military service. The rates were deliberately low and affected only a minority of people, and the impact of the two direct taxes on the government’s revenue was insignificant. Both, as well, were temporary, intended to stop with the end of the war. The profits tax expired in 1920 but would be revived during World War II, and the income tax would become the federal government’s largest permanent source of revenue. In short, by 1917 precedent and tradition had been abandoned; business as usual had given way to remarkable government intervention in the economy.

More than 600 Canadian factories, employing more than 250,000 workers, were producing almost 100,000 shells a day. Canada that year supplied between a quarter and a third of all the ammunition used by the British artillery in France and more than half the shrapnel. The demand evolved from orders for steel shells to contracts for other components, complete rounds of ammunition, and eventually the supply of airplanes and ships. By the war’s end, the IMB and its predecessor had spent $1.25 billion producing 65 million shells, 49 million cartridge cases, 30 million fuses, 35 million primers, 112 million pounds of explosives, 2,900 airplanes, 88 ships, and other assorted supplies.