POLITICAL UNCERTAINTY AND NEW INSTITUTIONAL ARRANGEMENTS, 1930-1939
By many indicators the 1923 to 1929 period was a prosperous era for Canadians. Exports expanded by one-third, real income grew by 25 percent, and immigration during the decade exceeded one million. 1 Sectors experiencing the most rapid growth were wheat and pulp and paper, buoyed by rising commodity prices. Fixed capital formation and provincial public works also expanded rapidly, especially due to hydro-electric developments and road building. 2
The Great War left the United States in the position of the world's largest creditor. According to one analyst, there were three basic reasons why America's new-found hegemony tended to destabilize the world's financial system. Firstly, the operation of the gold standard was most successful when London was the unchallenged centre of international finance. 3 After the War, with both Paris and New York competing as world financial centres, the probability of complications arising multiplied. Secondly, New York was "inexperienced" as a world trade centre and this weakness was magnified by its lack of dependence on foreign trade. Unlike England, which would immediately suffer from a drying up of world trade and credit, American financiers and legislators tended to see more benefits flowing from a policy of autarky than the dangers inherent in trade protectionism. The conflict between domestic and foreign economic policy was sufficient to produce Smoot-Hawley and other tariff barriers; measures which would have been suicidal for the United Kingdom's economy. And thirdly, the New York capital market was largely, although not exclusively, a money market. 4 Therefore, it was capable of disbursing only short-term credit to debtor countries when long-term assistance was required. 5 Compounding these problems of international financial realignment was the intractable question of Germany's reparations payments, French insistence on seeking damages and American demands for repayment in full.