Sinews of War and Peace: The Politics of Economic Aid to Britain, 1939-1945
Mackenzie, Hector, International Journal
Canadians have become accustomed to a relatively high level of national income, largely sustained by Canada's trade with the rest of the world. The foundations for that economic activity were laid during and after the Second World War, when memories of the Great Depression and its dire consequences for the Canadian economy were still vivid. Exports in wartime and after were seen as vital to Canada's recovery, to its contribution to victory, and to its plans for the postwar world. Scholarly attention has tended to focus on the options in commercial policy.(f.1) And there is no doubt that bilateral and multilateral trade agreements and commitments framed the choices and influenced the results. Perhaps understandably, less heed has been paid to the extraordinary financial aid advanced by the Canadian government in wartime and after, which underwrote the shipment overseas of Canadian goods. Yet, especially in the vital period of war and reconstruction, funding for Canadian exports, whether war goods or peacetime products, had a much more immediate and comprehensive impact on Canada's international trade. The prospects for access to overseas markets after the war also became increasingly important in reckoning the assistance Canada would provide to its allies and how it would be distributed. Enlightened self-interest shaped the unprecedented programme of postwar lending, initiated in wartime, whereby Canada underwrote its exports in a time of economic instability and uncertainty. In the calculations of Canadian largesse, the critical and often problematic destination for Canadian production was the principal recipient of Canadian aid, the United Kingdom.
The Second World War stimulated an economic boom in Canada. In response to British and other allied demands for munitions, food, raw materials, and other supplies, Canada's economy expanded dramatically; its gross national product more than doubled in six years. As a direct consequence of its war production, Canada became the fourth industrial power of the wartime alliance and the second largest exporting nation. But the question of payment complicated the picture. Though Canada went to war, as Prime Minister W.L. Mackenzie King put it, 'at the side of Britain,'(f.2) it was a dollar Dominion in a sterling Empire and Commonwealth. Little more than a year after war began, Britain's reserves of hard currency had been spent. Thus, Canadian output for the common cause depended on Ottawa's willingness and ability to finance British requirements in Canada. That assistance took various forms -- repatriation of British holdings of Canadian securities in the early months, loans and grants later, and finally Mutual Aid -- and amounted to considerably more than $5,000 million for British needs in wartime.
Although Canada eventually became an 'arsenal for the British Empire' as envisaged at the 1937 Imperial Conference,(f.3) the beginnings were inauspicious. When Canada declared war on 10 September 1939, only one factory was producing munitions for the United Kingdom and no arrangements had been made to pay for British orders in Canada. However insufficient its preparations and tentative its prewar commitments, the Canadian government was determined to support Britain against Germany, when war became unavoidable. In late August 1939, cabinet considered 'the extent of participation,' not the fact. Ernest Lapointe, the justice minister, asserted that Canada would assist its European allies to 'the limit of our resources.' The definition of that 'limit' would come to preoccupy Canadian authorities. Moreover, Lapointe cautiously added that 'we should say and do nothing that would divide the country.' National unity was likewise an obsession of the prime minister.(f.4)
In the first nine months of war, politics and economy were challenged only occasionally by military events. With uncertainty about the implications of the conflict and the part Canada was expected to play in it, 'limited liability' became a watchword in Ottawa. …