We propose to examine herein the position of the French and the English in the hierarchy of the economic structure. Not occupation as such, but positions of control are the centre of interest. Something of what we have in mind is indicated in the following quotation: “[Since] economic activity is quite as much organized through systems of administrative or canalizing controls as it is by the market, it is impossible to outline the structure of American economy without covering the structure of such controls. … In the conduct of economic activity the controls exercised by individuals or groups arise from three main sources: possession of one or more of the factors of production, possession of liquid assets, and position in relation to a functioning organization.”

It is common knowledge among the residents of Quebec that the English exercise a greater share of financial control than their proportion of the population would warrant. The English and French are quite conscious of this difference and each have their accepted clichés for describing or explaining it. As yet no detailed analysis has been made of the measure of this financial control or of the ways in which it has been exercised. Nor has any previous study shown just how important the ethnic factor is in the structure of financial control. In this study our analysis is confined to Montreal.

The presence in Canada of substantial minorities of Oriental race interests us both as citizens and as social scientists. Even those who believe that the task of good citizenship has been made harder by immigration from Asia must recognize that the interest of Canada to the social scientist has been enhanced.

The racial minorities are three in number and are very unequal in importance. There are about 25,000 persons of Japanese race in Canada, of whom 23,000 live in the province of British Columbia. The Chinese are somewhat more numerous in Canada, although there are only 21,769 in British Columbia. There are very few East Indians and it is significant that the Special Committee on Orientals in British Columbia which reported in December, 1940, treated “Orientals” and “Persons of Japanese and Chinese racial origins” as interchangeable terms.

The figures cited concern race (as determined by paternal descent) and do not indicate nationality or culture. Of the 23,000 persons of Japanese race in Canada approximately 2,400 are naturalized Canadians, and 13,400 Canadians by birth. This leaves an alien group of 7,200 but it must not be overlooked that many of those who are Canadians by birth may claim Japanese nationality by descent, or may have Japanese nationality imposed upon them because their parents have registered their births at the consulates. It is probable that almost all the Canadian-born are more Canadian than Japanese in culture, and this is true of some of the immigrants from Japan who entered Canada at early ages. Not many Chinese are Canadian either by birth or naturalization. For the former the figure is 900, for the latter 200. Of the East Indians probably none are aliens.

No one can deny that the present struggle is one of the most profound and certainly the most far-reaching in the recorded history of the world. There is not a corner of the globe, civilized or uncivilized, that will not see the effects of it in the everyday life of every man, woman, and child. The outcome will affect every one of us as it will even the native tribes of Africa and Borneo.

We, on our side, are usually said to be defenders of democracy against the foe of totalitarianism. We usually define our position as the maintenance of democracy. But I think we are defending something more fundamental and even more important than democracy. Democracy may be the form of government best suited for that defence. We think so, and we are maintaining it for that reason. But this democracy is only the means—we hope and trust it is the best means yet found—of ensuring something far deeper and far more important than this democracy itself. That something is the sacred right of a man to be a man. It is not the fashion any more to speak of the “rights of man,” but nevertheless, under whatever new name we put it, it is that for which we have always fought, for which we must fight now, and for which we shall have to fight in the future. Under totalitarianism the state is all and man is nothing. Every member of the state is moved from above. He has no rights, not even the right to his own thoughts if they could be known. It is a system of compulsion and terror, of force and of despotic power. It is only half the story, then, if we say we are fighting for democracy-it is far less than half of it. We are fighting for the right to be men, and we are fighting against a despotic form of government which denies us that right. To put this more concretely, we are struggling for limitations of despotic will, to secure our freedom as individuals in all those things in which this freedom does not encroach on that of others. We are battling for limited government and against unlimited governmental authority; for we want government to leave some corners of our life to ourselves in which we may speak and act and worship as we please. In short, we do not want citizenship to be a synonym for slavery. If democracy is likely to secure this, then we are for democracy; but freedom is far more precious than self-government, and self-government must prove itself able to maintain that freedom or it may turn out to be a failure. So I should prefer to call our present world struggle rather a struggle to maintain constitutionalism than a mere struggle for democracy. It is a life and death fight to maintain some limits to arbitrary will; it is a contest between will and law. Totalitarianism rests on the assumption that some men or some races are by nature so much better than all others that the good of the whole requires that these men or these races alone shall rule and shall regulate the lives of all the rest as slaves. The present connection in Germany between totalitarianism and the tribal myth of German superiority is by no means an accident. Some such myth, even one as fantastic and historically false as this, must be assumed if total domination is ever to be justified. This is why I have ventured to give the title of constitutionalism rather than democracy to the opposition to totalitarianism about which I propose to make some rambling remarks.

The first purpose of this article is to outline an approach to war finance which probably receives the approval of most economists, but which has seldom if ever been set down in black and white. This approach is that of a balance between the expansive and restrictive forces operating on money incomes. An alternative approach is the popular three-fold division of the subject into “taxation, borrowing, and inflation”; and it is argued at the end of the article that this approach is likely to be misleading. Certainly it is often misused. But before discussing the “three-fold division” it is convenient to see what light the “balance of forces” approach throws on the role of war loans and of central banking operations. The approach itself is probably more widely understood than are its implications in these directions.

No attempt is made to explain why taxation is generally preferable to borrowing or why inflation is to be avoided. That ground is by now sufficiently familiar. This article proceeds on the assumption that taxation will be used as far as it can be without damage to civilian morale and business incentive, but that a considerable amount of borrowing will be required nevertheless. The assumption is also made that inflation is undesirable. This is a point on which economists seem to have reached general agreement. Yet it is not beyond dispute; nor would the present writer wish to interpret the policy very rigorously.

Censorship in war-time seeks to withhold military information from the enemy, and to safeguard public morale from the corrosion of enemy propaganda. To achieve the first aim, press censorship is co-ordinated with censorship of radio, the mails, telephone, telegraph, and cable lines; and with appropriate safeguards against public access to prohibited areas.

The principles of military censorship are simple. The essence of successful warfare is secrecy. “Let us learn what we can from the enemy; let us teach him only what we must,” was the rule laid down by Lord Balfour in the last war. Surprise is still the most valuable “secret weapon” of war; and the ideal state of affairs from the narrow viewpoint of military operations is a complete black-out on all information regarding such matters as the strength of military forces, the disposition of units, the nature of defences, the stocks of war supplies, the rate of growth of the armed forces, the rate of production of war weapons, and so on. In modern wars, these desirable military secrets must be extended to facts concerning the economic, financial, and psychological strength of the nation at war.

The ideal state of affairs from the viewpoint of military operations is, unfortunately, at variance with other vital considerations. It is not practicable to screen all information from the enemy without hiding it quite as effectively from one's own people. Complete acceptance of the military philosophy of censorship would raise grave problems in a democracy, which relies so largely on an informed public, and on voluntary effort.

It may be thought that to give consideration now to the possibility of democratic government in a totalitarian world is an idle task. Whether there is to be a future for democracy rests in far more capable and determined hands than ours, and it may seem that there is little we can do beyond cheering on our defenders, assuring them of our confidence in their victory, and consolidating for them a whole-hearted support on the home front. In these perilous days there is a temptation for us to regard it as an impertinence to take stock of our position while the issue is still in the balance. The importance of action is so great that we tend to turn from the contemplation of ends and objectives to concentration upon the effective means of execution, to those practical arts appropriate for the mechanized warfare of an industrialized age. In a similar period of war and strife, even Milton, the great defender of the spoken word and printed page, could also renounce the “inglorious arts of peace,” proclaiming:

'Tis time to leave the books in dust And oil the unused armour's rust.

Yet, as we look back to the civil war of the eighteenth century, there are two things which should give us pause. One is that for Milton a long period of thought had settled in his mind certain firm convictions of the issue at stake and the direction which action should take. And secondly, even more important, is the serious doubt that Milton must have had later regarding the wisdom of the policy being taken by the man of action, Cromwell, whose praises he had sung. Was the establishment of the Protectorate the object which the Puritans and Parliamentarians had in mind? Evidently not. Was it not Milton himself who declared in dismay that “presbyter” is but “priest” writ large? Must he not secretly have considered that “Protector” was but “Prince” writ large, too?

We may begin by stating three fundamental factors which in their interrelationship and when set into our scheme of economic competition are the basis of the minority group status of the Japanese immigrants in America. It is also these three factors which serve to relate the American-born Japanese to the present world crisis.

To be considered first is the factor of race. It has been used as a discriminating category for land ownership, for naturalization, and for regulating immigration. In 1913 California passed the first of the anti-alien land laws, prohibiting aliens ineligible for citizenship from owning land. Other states followed later with similar laws. In 1922 the United States Supreme Court upheld a lower court decision that members of the “Mongolian race or the Malay race” could not be naturalized. The final legal disability placed upon the Japanese on a basis of race was denying them the right of any further immigration. This was established by the National Immigration Act of 1924, often called the “Exclusion Act.” Other groups face social problems because of discrimination based upon racial features, but in the case of the Japanese, when race is combined with the other two factors, it gains unique significance.

The second factor of fundamental importance is that of the Japanese ethnic heritage, of which a central point of concern was the Japanese family system. As early as 1900 the Americans in San Francisco were demanding exclusion, but then the immigrants were mainly single males, as the sex ratio of 2,369.9 males for every hundred females shows, but by 1910 this had dropped to 694.1.

The shape and content of the paper may be outlined in the beginning. It has three parts. The first suggests that the war economy is essentially distinctive. The transformation of life and purposes in war involves a revaluation of the factors into which we customarily subdivide the consideration of the social organization—the political, the administrative, the technical, and the economic. In its essence the war economy, concerned with victory not individual wants, strengthens the administrative, the technical and political, factors and reduces the importance of the economic as we know it. The ordinary economic criteria no longer apply. This raises the question discussed in the second part of the paper, the place of the price system in a war economy. In the private economy, the price system was the key to the distribution of resources, and in previous wars governments made the transformation to war mainly by acting on the price system via finance, by fiscal policies that expanded taxes, loans, and government expenditures and that thereby secured the re-allocation of resources. But this method and all its implications require reconsideration as a method of transition from peace to war, because the war economy is now so distinctive and because even in recent peace-time the price system was ceasing to be a satisfactory allocator of resources. The third section discusses the inapplicability of certain economic criteria in a war economy. The implications of this are left to the academic economist himself.

Aviation changes so rapidly that one is virtually compelled to acquire wings oneself in order to keep up with it. Moreover, there is a scarcity of accurate information on many matters in which the economist is particularly interested. Nevertheless it is worth while to outline some of the economic aspects first of air transport in general and, secondly, of airplane transportation in Canada. The analysis is necessarily incomplete but it is hoped that it will serve as a basis for further discussion.

Air transport can best be dealt with under its most important characteristics—speed, reliability, safety, cost, scheduling, completeness, and comfort. Speed, of course, is the greatest single advantage of airplanes over competing forms of transportation. The characteristic of speed arises both from high speeds per hour while in motion and the fact that the planes can fly in a direct line without much regard to the underlying terrain. Scheduled aviation maintains an average of 180 miles per hour in the United States. On the San Francisco-New York fast sleeper service, however, the average speed is 165 miles per hour compared with 161 miles per hour on Trans-Canada's Vancouver-Montreal service. As these figures include stops, flying speeds are more than 200 miles per hour. Because air resistance increases as the square of the speed there would seem to be definite limits to still higher regular speeds except, as in military service, where costs can be ignored. On the other hand, past experience with prophecy in aviation indicates the dangers of prediction. Moreover, sub-stratosphere flights at upwards of 400 miles per hour are an immediate possibility. Speed is significant mainly in the longer hauls for in the shorter distances the time involved in going between the terminal airports, which are usually on the outskirts of the city and downtown business sections, offsets any reduction in travelling time in the line haul. The terminal difficulty may be overcome by taxicab services to and from the fields or by higher line speeds or by the expensive process of locating terminals near down-town areas.

Upper Canada acquired a wheat-growing reputation during the 1830's comparable to that of the Genesee Valley or of Ohio. At that time, it was remarked, “the great and almost sole object of serious interest to the Canadian farmer was to grow wheat as largely, and to repeat the crop as frequently, as any decent return could be obtained.” Nor was this unreasonable. Lord Durham was informed that “in Upper Canada, the whole of the great peninsula between Lakes Erie and Huron, comprising nearly half the available land of the province, consists of gently-undulating alluvial soil, and with a smaller proportion of inferior land than probably any other tract of similar extent in that part of North America, is generally considered the best grain country on that continent.” The red and white winter wheats grown in Upper Canada in a favourable season, when exported to Great Britain, were “spoken of by millers as a grain of superior quality” and “brought the highest prices the markets would afford.” Finally, the merchants in many places were accustomed to pay cash for wheat, while they would receive other products only in trade. When he had a steady market, the wheat farmer had cause for thanksgiving; but all too often he lacked it.

The ordinary market for the surplus wheat and flour of the Canadas was the United Kingdom, but the amounts exported fluctuated widely from one year to the next. Poor crops or good crops, increases in acreage, and especially the capricious Corn Laws, were the determining factors.

Professor bates's paper has set the whole background for a discussion of the price system in war-time, and has raised important theoretical problems. I propose to deal rather with specific measures, of policy and organization which have been undertaken in the present war period, and lead up to some indications of the serious problems which loom ahead.

I shall have little to say here on the broad problems of controlling inflation. These have been attacked mainly by fiscal measures, though the co-ordination of such fiscal measures with other policies of control is of the most vital importance. The foundation of price control has been since September, 1939, and must in large measure continue to be, a fiscal policy which has endeavoured to channel the increase in purchasing power through the Treasury into the procurement of essential supplies. Such specific measures as the Excess Profits Tax have had a very important influence in reducing the incentive of the business, seller to raise prices, though the Excess Profits Tax doubtless has an opposite effect on the business firm as a purchaser.

By luck and good management, fiscal policy has been so far reasonably successful, but it has up to the present not encountered really serious inflationary problems. It is sufficient, however, to say here that without an appropriate fiscal policy no measures for the control of prices or supplies can be fully successful.

For my own purposes I suggest three elements of background for a discussion of this subject.

This paper consists primarily in the application of a rather simple diagrammatic technique to several problems in the theory of imper-fect competition which have either been neglected or which have previously submitted only to very powerful (and complicated) mathematics. In the first section of the paper we shall examine several instances where the demand schedules for a firm's output are dependent upon the prices the firm pays (and/or the quantities that it uses) for the factors of production which it hires. The second section of the paper will contain an analysis of “monopoly over time” together with an application of the technique used in solving this problem to the determination of the optimum output of each product, if the firm produces more than one.

It is an old and well-worn charge, now re-enforced by the emergence of the totalitarian state, that democratic governments are essentially inefficient. They are especially alleged to be slow in decision, cumbersome in movement, uncertain and unduly deliberate in execution, these faults tending to become much more pronounced when the increased stresses of war make effective action imperative. But the validity of so sweeping a criticism may easily be questioned, although it is, up to a point, undoubtedly justified. For once that point is passed and a democracy is fully seized of the seriousness of the emergency, it may develop reserves of power which have been hitherto unsuspected, and display a political resourcefulness which will enable it to mould and adapt its institutions to the novel demands made upon them. Such, at least, was the experience during the last world war, and such seems to be the trend of events during the present war also. From this point of view, a survey of the Canadian effort during the past eighteen months discloses something more than the struggle of the Dominion to win the war. It also furnishes an interesting illustration of both the flexibility of democratic government and the nature of the devices which a democracy may utilize without entirely sacrificing the ideas of responsibility and popular control.

In the early months of the present war the Dominion of Canada moved, in the language of the English Chancery, “with all deliberate speed.” The original idea, generally held and frequently expressed, was that the war could be fought in rather leisurely fashion, that Canada could participate and at the same time limit the extent of her efforts. This seems, at least, to have been the hope of most of the people, derived partly from their own inclination, partly from the attitude of their government, and partly also by contagion from the lukewarm Chamberlain administration in Great Britain. Canadian Ministers visited England and British officials came to Canada, and all professed to be quite satisfied with the progress of events, awaiting with some complacency the slow economic starvation of Germany as an inevitable consequence of Allied encirclement. Unhappily Germany had other ideas. The disasters of last spring brought a violent awakening, and were susceptible of but one interpretation: the issue became thenceforth a simple one-win or perish.

Federalism is not the least of interests shared by Canada and the United States. The elements of likeness and unlikeness exist in a balance that makes comparison profitable, although such comparison is allowed to remain implicit in the following survey of trends in the United States. To discuss in Canada the federalism of another country, of course, is to carry to Newcastle the ashes of its own coals, so greatly are all federal systems in debt to the monumental inquiry of the Royal Commission on Dominion-Provincial Relations. No similar focus yet enlightens the analysis of federal problems in the United States.

The temper of the United States is incorrigibly one of contrivance. The brevity of the constitution leaves it essentially unwritten. Of the obstacles of the formal amending process, of course, it can no longer quite be said, as Frank J. Goodnow put the matter in 1911, that “the constitution of the United States is, on account of the complicated procedure and the large majorities required, very difficult, if not impossible, of amendment under ordinary conditions.” After forty-three years without an amendment, six have been ratified since 1913. But the habit of relying on adjustment by interpretation is deep. The Supreme Court controversy in 1937 would have found the country at a loss to suggest just how it would amend the Constitution if the discussion as a practical matter had taken that turn. Students of government are sometimes irked by the atmosphere that takes for granted the necessity of advance by accommodation; mostly, however, their lives are spent on detailed inquiries that merely deepen the assumption. In recent years the impact of events abroad has challenged them to identify and to reaffirm the fundamentals of popular government. But the effect of these events has been to throw the United States back upon its constitutional tradition. The mood will last, it is admitted, only so long as there is movement and vigour. Never has the constitutional system of the United States been more fluent. Paradoxically, this condition encourages the survival of the old reliance on piecemeal adaptation.

During the last two decades, considerable progress has been made in the measurement of national income, while the measurement of national wealth has lagged. This situation contrasts with the fact that it was wealth rather than income in which economists were first interested. The late Lord Stamp read a paper to a meeting of the Royal Statistical Society in 1919, in which he discussed the wealth and income of the chief powers of the world. In this paper he considered some eighteen countries for which there were eighteen estimates of national wealth, but only ten of these countries had estimates of national income. Professor Bye, in the second volume of the National Bureau of Economic Research series entitled Conference on Research in National Income and Wealth, goes back even farther to show this change in interest. It may be pointed out that Adam Smith called his famous book The Wealth of Nations.

Only since the last war has great progress been made in the measurement of national income. The increase in accuracy of the estimates has brought about an increase in their use until now they serve as legitimate bases for all sorts of comparisons. They stand in somewhat the same position as population estimates, as fundamental points of reference. This development is one of foremost importance in the social sciences. There seems to be little question that adequate measurements of income are more useful than equally adequate estimates of wealth. The former is a measurement of the effectiveness of the working of the economy. The latter is but one of the factors in its working.

The basic principles and purposes of the Excess Profits Tax Act 1940 might be said to be twofold. (1) The Moral Aim of Taxing Excess Business Profits, excess being defined as the difference between your war-time profits and your pre-war profits. This aim, in the opinion of some, springs from political soil. Dr. Harley L. Lutz of Princeton University has said of the American Act: “There is only one case for the excess profits tax and that is the political case. There is no real danger of creating war millionaires this time.” Possibly some Canadian economists may agree with him, but I suggest that advance statistics of 1940 profits and taxes from a considerable sample of Canadian companies might indicate striking evidence to the contrary. (2) To Secure Revenue from Business Profits to Finance the War Effort. As indicated in the last budget, the Excess Profits Tax Act is expected to produce $220 million in a full year. The revenue is to be produced only partly out of excess profits since there is a minimum tax now of 22 per cent on total profits if the 75 per cent tax on excess profits does not exceed the 22 per cent tax on total profits. Thus even the business which was highly prosperous during the pre-war period and has not increased (but may even have decreased) its profits since the war began, will pay a very substantial tax under the Excess Profits Tax Act.

This study aims to measure the net investment or savings of individuals and enterprises in Canada. Two methods are available, the inventory or change of stocks method and the production or flow of goods method. The first compares the capital value of all durable goods at the beginning and end of the period in question, at constant prices, the difference being net saving or dissaving (inventories excepted). The sources for this approach consist of balance sheets and other data of the type used in making an estimate of national wealth. The second, the production or flow of goods method, utilizes records of retail sales of durable goods and, where sales data do not exist, figures of production, imports and exports, etc. From these sources the selling value of all durable goods sold or available to be sold, i.e. gross investment, is estimated. From gross investment is subtracted an estimate of the value of durable goods required to maintain existing capital intact. The remainder, which we shall call net investment or net saving (the additional adjective aggregate being taken for granted in both cases), represents the value of the net addition to the stock of durable goods.

To the layman, net investment appears remote from net saving. It can be demonstrated, however, that it does not differ significantly from saving, at any rate for statistical purposes. By saving is meant excess of current income over current outgo. Current outgo is taken to include appropriate charges for depreciation but excludes repayment of debts. Saving or non-current outgo is defined to include many consumers' expenditures for capital goods, as indicated in Table I.