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Published online by Cambridge University Press: 07 November 2014
Before World War I a relatively high degree of regional specialization in the production of agricultural commodities had developed throughout the world, and the Canadian prairies had turned to the production of wheat. During the 1920's this structure of regional specialization was seriously undermined and the depression of the 1930's brought disaster to many specialized regions, including the Canadian prairies. Two significant conditions upon which the settlement of the prairies had been premised, relative freedom of trade and an upward trend in the population of Occidental countries, were altered adversely. When, in addition, a series of droughts afflicted the prairies during the 1930's, the economic plight of the region became nothing short of desperate. Its inhabitants felt that they had been “let down” by their own federal government and by the world in general, and they protested in a variety of ways. In Alberta, a dynamic leader spearheaded the Social Credit movement which captured the provincial government, attempted to set up a provincial monetary system, and defaulted on the provincial government debt.
This paper was read at the annual meeting of the Canadian Political Science Association at Quebec, June 5, 1952. It is drawn from a larger work entitled A Financial History of Alberta, 1905-1950, presented as the writer's doctoral dissertation at Clark University. The writer expresses his appreciation to Professor James A. Maxwell, Clark University, and Professor J. L. McDougall, Queen's University, who read the manuscript and offered valuable comment.
1 The reasons that Social Credit assumed power in Alberta but not in Saskatchewan include many factors besides the economic ones.
2 In only three years between 1905 and 1936 did the Alberta treasury have surpluses. This state of affairs was reversed after 1936; since that date there have been no deficits.
3 The term “provincial income” is used in this paper to denote the aggregate personal income received by Albertans. It rose from $188 million in 1936 to $907 million in 1950. See Dominion Bureau of Statistics, National Accounts, Income and Expenditure, 1926-1950 (Ottawa, 1952).Google Scholar
4 The population of Alberta is largely concentrated in about one-quarter of the area, comprising the east-central and southwestern part of the province. This “core” has four-fifths of the population; it produces more than three-quarters of the gross value of agricultural products annually, more than nine-tenths of the oil, and about two-thirds of the coal. Yet its population density is only twelve per square mile if the urban population is included in averaging; it is less than six if one excludes the cities and towns. Settlements outside this core are scattered.
5 Manitoba and Saskatchewan also experience the handicaps of low population density. But these provinces have fewer scattered outposts than Alberta. Also they were not so extensively involved in uneconomical railway and irrigation and telephone projects during the 1905-21 period.
6 This project, besides being an example of the most wanton kind of “autonomous” investment, was instrumental in splitting the Liberal party in Alberta in 1910 and in embarrassing the provincial government financially during the next two decades.
7 In addition, considerable sums have been spent annually for decades in advertising Alberta coal. Highways have been built through empty regions to reach national parks. The vital eastern slopes of the Rockies, which are located in Alberta, have cost the province large sums for forest protection since 1930. The physical resources have, in short, been a standing invitation to spend, and were a major factor leading to the financial strain which came to the breaking point in 1936.
8 Canada, Report of the Royal Commission on Dominion-Provincial Relations (Ottawa, 1939), Book III, Table 7.Google Scholar
9 Ibid.
10 This statement is made on the basis of provincial income estimates made by the writer for 1905-21. An outline of the procedures and sources used would be too elaborate to present here.
11 Dominion Bureau of Statistics, National Accounts. The Bank of Canada, lacking reliable income data, described the 1925-9 period in Alberta as one of “exceptional prosperity.” The Alberta economy was relatively depressed until 1925, enjoyed a brief period of prosperity until 1927, and then slumped to a low in 1933. See Bank of Canada, Report on the Financial Position of the Province of Alberta (Ottawa, 1937), 11–12.Google Scholar
12 See The Municipal Assistance Act of 1951 which provided for the setting up of a permanent fund to be used exclusively to give increased financial assistance to tax-levying local government units. The provincial treasurer is to pay into the fund annually a certain proportion of gasoline tax collections. From the fund is paid a “tax reduction subsidy” not exceeding three mills annually to all tax-levying local governments which have reduced or retained their aggregate mill rate below the highest mill rate levied on a comparable basis of assessment in any year after 1949. The amount of the subsidy in each case is one mill for each mill of tax reduction. The subsidy is conditional upon tax reductions, and is in effect an attempt to check the rapid rise in local government expenditure, a phenomenon about which the provincial government is deeply concerned. After deducting the amount required for tax reduction subsidies, the entire balance remaining in the fund for the year is distributed as unconditional grants on the basis of the proportion which the total assessment of each unit bears to the aggregate assessment of all units. An analysis of the scheme cannot be attempted here.
13 The words “surplus” and “deficit” as used here denote the difference between receipts which improve the condition of the treasury without increasing the liabilities (revenue) and cost outlays, i.e. payments which worsen the condition of the treasury without decreasing the liabilities (expenditure). Thus there is no reference here to that dubious distinction between “income” and “capital” account which has somehow found its way into public accounting. During the pre-1935 period in Alberta, there were few attempts to give the legislature and electorate over-all surplus or deficit figures (they were nearly all deficits); much emphasis was put upon income account which showed a surplus frequently enough. One of the first facts given in the public accounts after 1935 is the size of the “over-all” surplus or deficit for the year; thus the new administration has provided a meaningful statement of annual financial condition. The treasurers of the Social Credit administration tended to predict deficits instead of surpluses, and during 1936-45 outlays on the redemption of savings certificates were included in expenditure which, of course, increased the size of the predicted deficit, or decreased the size of the predicted surplus.
14 The following table indicates the growth of revenue from the Dominion, from the public domain, and from other sources during 1946-51, in millions of dollars:
15 This is an increase of 63 per cent. Provincial income rose by 36 per cent between 1946 and 1950.
16 In 1936 provincial government revenue equalled about 12 per cent of provincial income. Except for Dominion subsidies and grants-in-aid, the revenue was obtained directly from provincial residents. In 1950 revenue equalled about 15 per cent of provincial income, but only about half came directly from Albertans. The other half came from the Dominion and from the sale of leases of public domain to oil companies and syndicates largely financed by non-Albertans.
17 Total expenditure includes gross outlays of the telephone system.
18 This statement is made on the basis of a series of net income-producing expenditures of the provincial government between 1905 and 1950 prepared by the writer. These expenditures are denned as the net additions to, or deductions from, the disposable cash income of the community. See Harris, Seymour, ed., Postwar Economic Problems (New York, 1943), 223.Google Scholar The writer added receipts from the Dominion government, over-all deficits, and estimated revenue collections from non-Albertans, and subtracted estimated interest payments on externally-held debt of the provincial government. The resulting aggregates were positive 1905-35, negative 1936-42, and positive 1943-50.
19 The following table shows the components of revenue from petroleum and natural gas since 1946, in millions of dollars:
The bulk of petroleum and natural gas revenues has been obtained through fees and rentals and the sale of leases to oil companies and other investors. Most of the cash used for these purposes is obtained outside the province.
20 Assuming that initially there was a tolerable balance between income and interest charges.
21 Major Douglas, in a letter to Premier Aberhart, said: “If the provinces of Canada allow their remaining autonomies in regard to the most important factor in the constitution–that of finances–thus to be filched away from them, then I have little doubt that democracy is doomed.” See Edmonton Journal, Feb. 11, 1936.
22 Actually, revenues increased by $3.6 million, chiefly because of increased tax rates and the imposition of a sales tax. In spite of this increase and the reduction in interest payments there was a deficit of almost $2 million. In addition, more than $4 million of security issues fell due during the year.
23 See Britnell, G. E., “The Elliott-Walker Report: A Review,” Canadian Journal of Economics and Political Science, II, no. 4, 11, 1936 Google Scholar; D. C. MacGregor, “Income and Expenditure in Alberta: A Revision,” ibid.; and Courtland J. Elliott, “The Elliott-Walker Report: A Rejoinder,” ibid.
24 More detailed attention is given the issues by the writer in his work on government finance in Alberta since 1905.
25 The income of farmers shrank from $139 million in 1927 to $5 million in 1933. During 1931-6, the personal income per farmer in Alberta was less than $200 annually, on the average. Similar observations can be made about Manitoba, and more especially Saskatchewan.
26 There had been unsuccessful negotiations with bondholders' representatives before 1945. In 1945 the Alberta government made a proposal in which it offered new thirty-three-year 3½ per cent callable bonds to holders both of matured bonds in default and of unmatured bonds. It also offered to pay about one-third of the unpaid interest. (See Alberta, , Sessional Papers, Budget Speech, 03 9, 1945).Google Scholar The Dominion offered to allow Alberta to change over to the debt option retroactively under the wartime tax agreement and to pay a fiscal need subsidy of $2.4 million for the years 1937-41 if the province consented to pay interest arrears in full. The provincial government finally agreed to the Dominion proposal. Arrangements were made to pay interest arrears in full during 1946-51, and the new thirty-five-year serial and callable bond issues bore interest at 2 to 3½ per cent.
27 On March 31, 1936, the average coupon rate of the funded debt was 4.8 per cent; on March 31, 1946 (after debt reorganization) it was 3.3 per cent; on March 31, 1951 (after refunding) it was 2.7 per cent.
28 See Bank of Canada, Statistical Summary (Ottawa, various issues)Google Scholar for data on the levels of provincial debts in Canada.
29 See the second last column in Table III.
30 Bank of Canada, Statistical Summary.
31 By cash deficit is meant the difference between annual payments and receipts.
32 Nearly $25 million would have been required from the Dominion.
33 It would have risen to this level from $2 million on March 31, 1948, a striking illustration of the phenomenal rise of public domain revenue.
34
35 In 1936 the bulk of sinking fund holdings were in the form of Alberta debentures. For tills reason the fund was largely illiquid in that year. No account is taken of the possibility that Alberta bonds might have risen above par on the market after 1936. Differences arising from taking into account such conjectural possibilities would not be significant.
