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Published online by Cambridge University Press: 07 November 2014
Prior to 1930 discussion of public investment was conducted largely on the basis of an assumption of full employment within a closed economy. Consequently it centred around the productiveness of public investment as opposed to that undertaken in the privately-operated sector of the economy, the appropriate methods of financing the projects undertaken, and the legitimate spheres of operation of public bodies. The usefulness of public investment projects was believed, in the main, to be confined to their long term contribution to the productiveness of the economy. In practice, even well into the nineteen-thirties, governments, with exceptions, undertook public projects when finances were buoyant and borrowing relatively easy, and curtailed them, in attempts to balance budgets, when depression became serious.
After 1930 both in the thought and practices of some central governments and in economic writing the pendulum swung the other way. Main emphasis was laid on the current employment and income giving effects of public investment. This change in emphasis received additional impetus after the advent of The General Theory of Employment, Interest and Money when economic discussion became much more concerned with the level of employment than the distribution of the factors of production among alternative uses.
The transfer of attention from the long term aspects of public projects to their effect on current employment and income maintenance was accompanied by the shortcomings of practice and thought which are inevitable in an undeveloped field. While a good deal was written and spoken about the desirability of well thought out and well planned investment, insufficient attention was given to its attainment and in practice resort was had to many undertakings whose value, from either a short or long term viewpoint, was dubious. The shortcomings were largely associated with failure to cope adequately with the institutional and administrative problem involved. Further, there was a penchant for fastening on single devices to meet the overall employment problem.
The opinions expressed herein are those of the writer only; no responsibility for them is attached to the department in which he is employed.
1 In Canada after 1929 this was largely a matter of necessity with provincial and local governments who did not have access to adequate financial resources, either through taxation or borrowing.
2 Reference may be made to the policy of the Canadian government of undertaking a few projects in 1930 and 1931 and to the public works programme initiated by the United States in 1933.
3 Keynes, J. M., General Theory of Employment, Interest and Money (London, 1936).Google Scholar
4 If main interest is centred in developing savings offsets, all that is necessary is to increase the government deficit. However, owing to the importance of consideration of the structure of the economy in any employment programme and the fact that private investment declines much more than other private spending during periods of depression, a need for public investment as well as deficit financing seems indicated.
5 This assumes a period sufficiently long to allow movement of labour and industry both industrially and geographically. For the need to increase the mobility of labour and capital, see SirBeveridge, William, Full Employment in a Free Society (London, 1944).Google Scholar
6 If private investment declines drastically, it would not be desirable to fill the entire gap by increased consumption expenditure as investment outlay is of such importance for the future.
7 To some degree the great distances in Canada require relatively larger expenditures on transportation than in other countries. This might seem to indicate this type of outlay might continue to dominate public investment. But the effect of distance may be exaggerated. Its effect is mainly felt in inter-urban and inter-regional travel and the high standards necessary for more densely populated areas largely offsets the effects of more sparse settlement and greater distances.
8 If pressure on the labour market threatened to lead to serious inflation it might be necessary to curtail the regular public investment programme temporarily.
9 The division of utilities into public and private in Table I was made on the basis of status in 1941, and each utility was recorded in the same group throughout the entire period 1926-41. Hence a small part of the expenditure shown for the publicly owned utilities in the earlier years of the period was made by companies which were private at that time but which were later taken over by public authorities.
10 Conservation and development of natural resources is included in this group for, though several million dollars per year have been spent in the past, the amounts involved have been small compared with what might be considered adequate if only from the view point of the productive assets provided.
11 See Advisory Committee on Reconstruction, Report no. 2, Conservation and Development of Natural Resources.
12 As ability to make foreign loans depends on the willingness of the countries to accept them, the matter is only partly in the hands of the Canadian government.
13 A floor price programme for durable commodities may involve inventory holdings unless the commodities are sold at less than cost.
14 See Myrdal, Gunnar, “Fiscal Policy in the Business Cycle” (American Economic Review, 03, 1939, supplement).Google Scholar
15 See Musgrave, R. A., “The Nature of Budgetary Balance and the Case for the Capital Budget” (American Economic Review, 06, 1939).Google Scholar
16 For instance, Lerner, A. P., “Functional Finance” (Social Research, 02, 1943).Google Scholar
