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Chapter 18.docx

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Brock University
Indra Hardeen

Chapter 18 – World War II, 1939-1945 The Early Period • The problem was not shortages of labour, especially skills labour, which brought the difficulties of supplying the tremendous demands of a modern industrial war to the fore • From the economics of overcapacity, Canada quickly came to experience the complex changes of rapid growth and structural transformation • The same rapid transformation affected the international economy, on which Canada was so dependent trade patterns shifted dramatically resources and, before long, manufactured materials • Such rapid shifts would, before long, create serious concerns over the balance of payments situation and long term currency relationships • The demand of government, not the open marketplace, would determine the direction in which production, employment, export trade, and many other things moved Constructing a Wartime Economy • As in WWI, the government faced two basic economic challenges in constructing a wartime economy • First, it had to lay claim to the goods and services that it needed to support a major military commitment • As excess capacity disappeared, the government had to find ways to increase its share of aggregate output at the expense of private uses, particularly private consumption spending • The second challenge was related to the first • The government needed not only to increase its share of aggregate output, but also to shift the composition of this output from civilian to military ends The Setting • By 1939, it was more than $5 billion for the Dominion government alone, and politicians maintained their steady warnings of disaster if this burden was not diminished • The financial limitations were compounded by the relatively restricted role of the Dominion government • Aside from the obvious need for growth in the armed forces, the government would need to increase its capacity tremendously if it was to oversee a modern industrial war • The government managed the transition from peace to war, and the subsequent management of the war, extremely y well • Many individuals inside and outside the government had, in the interwar years, been discussing the role of government planning and intervention in the modern state • Public desire for a more efficient response to an urban industrial society was muted by memories of the huge interventionist government of WWI and by fear of high taxation • In the 1930s, the Depression had provided a powerful impetus for discussions of change • The War Measures Act passed in 1914, was still on the books and was proclaimed even before the war began • This act allowed for a central direction of the economy in a way not possible in peacetime situations • One of the most important assertions of Dominion power came at the expense of the provinces • Revenue was another area where things had changed drastically after the Depression • A nation of full employment and production was able to generate taxes for government activity in a way that the depression ridden 1930s could not • Finally, war made high taxation acceptable Financing Government Wartime Expenditure • The federal government had three means by which it could increase its share of aggregate output at the expense of private spending: borrowing, taxing, and printing money • On the borrowing front, war bond drives began almost immediately and continued for the duration of the war • Taxation, by forcing a reduction in private consumer demands, would lessen inflationary pressures • The other major innovation in taxation was excess profits taxes • In 1939, total federal government expenditure had amounted to less than 11% of gross national expenditure • By 1947, customs and excise taxes accounted for only 14.5% of total revenue, while income taxes had risen to almost a third • The third means open to the government to finance its wartime expenditures was the age old expedient of printing money Diverting Production to Wartime Needs Macroeconomic Measures • Keynesian theory, with its concept of ma
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