Robert Skidelsky
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Keynes and Canada
Robert Skidelsky
Toronto Seminar | Tuesday, November 06, 2001

When I started to think about what to say this morning I had quite a limited story in mind, which is about how Keynes impinged on Canada and on how Canada impinged on Keynes. But the more I thought about it the more I realised that this might be a way into a larger set of questions concerning the value of the Canadian connection to Britain and the value of the British connection to Canada.
The answer to the first question is clear enough, and was written in both blood and money. Canada –and more generally the British Empire –enabled Britain to fight both world wars as a Great Power. Historians of the second world war, in particular –and I am as guilty of this as any –have, by focussing on the Anglo-American relationship, underestimated the extent to which Britain was able to mobilise the resources of its empire for war purposes and use the empire as a bargaining counter, both in wartime financial negotiations with the USA and in planning for the post-war order. By introducing this dimension one understands better why Churchill was so desperate to cling on to the Empire and why the USA was so keen to dismantle it. Britain needed the empire to prevent it from becoming purely a satellite of the United States.
What about the value of the Empire for Canada? The clue for me came from reading Lionel Gelber. I began to understand the strong Canadian dimension of Gelber’s championship of the British Empire or Commonwealth, especially during the second world war. He relied on what he called the continuing ‘pre-eminence’ of the British Empire after the war to stop Canada being sucked completely into the American orbit. The British Empire, he suggested, gave Canada choices in both domestic and international politics and economics, a bigger part to play on the world stage than if it were entirely on its own. Unless the Canadians remained British, he suggested, they would inevitably become Americans, so powerful was the pull of their southern neigh bour.
So the story of the British-Canadian connection in the modern period can be read as a failed attempt by both countries to preserve a margin of effective independence vis-à-vis the United States, an attempt partly frustrated by the very tensions inherent in the imperial relationship.
Keynes visited Canada three times in all in 1944-5, for financial negotiations on Mutual Aid, the Canadian version of Lend-Lease. He loved Canada: ‘if one ever had to emigrate, this should be the destination, not the USA’ he wrote on his first visit in 1944. (Q Skidelsky, 3, 360) There were many reasons why he might have felt this, but one stands out. Canada gave Keynes –and Britain –a much easier time in the 2WW than did the Americans, so that his trips there were much less stressful.
There was a reason for this. Canada in the early 1940s was an independent Dominion of what was still known in London and to foreigners like Hitler, Roosevelt and Stalin as the British Empire. True enough, there was no centralised imperial organisation, and the wartime Canadian prime minister, Mackenzie King, was the strongest opponent of any moves in this direction. The constitutional relations between Britain and the Dominions had also been changed by the Imperial Conference of 1926 and the subsequent Statute of Westminster. When Britain went to war in 1914, it committed the whole empire; in 1939 it committed only itself and the dependent empire: but all the Dominions (except Ireland) followed suit, proving that there was still vitality in the imperial idea. In Washington Keynes conducted financial negotiations with a foreign power, and at first, one that was not even an Ally. For Canada, the British Empire remained important, not just for reasons of sentiment and culture, but as a counterweight to American dominance, political and commercial. So Keynes, as the envoy of Britain’s Chancellor of the Exchequer, was always assured of a more cordial welcome in Ottawa than in Washington.
So the imperial context is the right one for discussing the Keynes –Canada connection.
But first a note of caution. Except in the second world war, Canada was never a part of the world that Keynes thought much about: never nearly as much as he thought about the United States, Germany, France, the Soviet Union, or India. Canada and its problems did not help fertilise the thinking which led to the Keynesian Revolution in economics. In the critical Depression years, Keynes had more contact with Australia than with Canada.
There is one footnote to this. Keynes speculated in commodities, including wheat, for much of his life; Canada regularly appears in lists of comparative commodity statistics he prepared for special supplements of the London and Cambridge Economic Service in the 1920s.(CW, vol.xii) Keynes’s intimate knowledge of commodity markets fed into his proposals of 1938 and 1942 to create international buffer stocks to stabilise the prices of the main commodities entering world trade, and through that, the incomes of their producers.
Buffer stocks were, if you like, the Keynesian counterpart, for primary producers, of Keynesian full employment policy for industrialised countries-an aspect of the Keynesian Revolution which has been too little explored.
But now let me revert to my main theme.
As a young man, Keynes was neither a jingoistic imperialist, nor an economic imperialist in the Joseph Chamberlain or Beaverbrook sense. But neither was he an anti-imperialist. He did not, for example, believe that Britain exploited its empire economically, or that imperialism was a moral blight. He accepted democracy, but was against large extensions in its scope. People, he thought, were entitled to good government, not self-government, and, on the whole, he thought the British empire brought about better standards of public administration over large part of the world than would have been achieved in these areas on their own –or subject to another power. In short, the empire stood for enlightened government. This was in the tradition of James Mill and the Benthamite Utilitarians. To put it bluntly, he did not think very much about the British Empire at all. It was simply a fact of life, and as yet a virtually unchallenged fact.
His comments on empire are linked to specific events. The first set was elicited by the Boer War, when he was a schoolboy at Eton. In one essay dating from 1899 called ‘Victorian Achievements’ he wrote:
His cool, matter-of-fact, attitude to the British Empire is captured in some schoolboy essays he wrote at Eton when he was sixteen, at the time of the Boer War. In one, called ‘Victorian Achievements’ he notes:
It is only in the present reign that we have begun to realise the responsibilities of Empire and to see our duties to subject races.
We have begun to see that Great Britain may have a high destiny and a great future before us. We have perforce taken up the ‘white man’s burden’ and we must endeavour to wield the powers of Empire with more lasting effect and to greater good than the mighty empires which have risen and fallen through the course of history. (Skidelsky, I, p.89)
In a second essay, called ‘The English National Character’, he develops his notion that the typical Englishman is ‘neither reactionary nor radical’. He deplores the tendency to ‘patrophobia’ or hatred of one’s country, which ‘seems to possess a certain class of Englishmen’. The criticism of left-wing liberal support for the Boers is unmistakable.(Keynes Papers,PP/31)
His third essay on ‘The Differences between West and East’ opens with a resounding premise: ‘In the West it is the individual that is all important, in the East it is the mass’. From this follows the difference between democracy and despotism, invention and stagnation. ‘The course of history shows’, Keynes writes, warming to the Yellow Peril theme, ‘that any attempt of the East to overwhelm the West has been attended with great danger to human progress and to human good’. (Keynes Papers,PP/31) In 1914, he warned of the danger of ‘racial wars’, brought about by Malthusian pressures from the more fertile Asiatic countries. (Skidelsky, ii, pp.429-430)
Samuel Huntington’s ‘clash of civilisations’ thesis shows that such fears are far from dead. The supposed incompatibility between Islam and the West has been much trumpeted since the events of 11 September. In contrast, though, to today’s attitudes, is the young Keynes’s cool approach to casualties. In a letter to his father on 17 December 1899 he wrote: ‘In the battle of Albuera nearly a hundred years ago in the Peninsular War our losses were seven times as heavy per cent, as at the Modder River [in S.Africa]. Yet we won…It is rather deceptive, too, including in the terms ‘losses’ wounded and missing as well as killed’. He went on: ‘It is hard luck on generals that news should be transmitted so quickly. The people don’t see the result of the campaign, but seem to gloat over every little loss. Seventy men killed in battle is terrible for their families, but it is a tiny thing for a nation of thirty million’. (Keynes Papers,PP/45 ) In fairness, Keynes was to revise these views in the first world war.
A second glimpse of the early Keynes’s attitude to empire is afforded by the speech he gave in the Cambridge Union in 1903. In opposing Chamberlain’s Tariff Reform Campaign on impeccable liberal free-trading grounds, he warned that Chamberlain’s policy ‘would make the Empire synonymous with all that is most brutal and sordid in our race’. The purpose of the British Empire was not to provoke economic warfare with the rest of the world but ‘to provide facilities for the growth under freedom and justice and without molestation from abroad of these young nations’ (ie, the Dominions).(Keynes Papers,OC/2) The 19th century British Empire was run on a free trade basis. This is what made it acceptable to a liberal like Keynes.
Keynes’s most important personal contact with Empire in his pre-1914 years arose from his two years as a clerk in the India Office between 1906 and 1908. This confirmed his view that what the British provided India with was good government. In the interwar years, Keynes resisted the Indianisation of the Indian civil service on exactly this ground. In the 1900s, it occurred to hardly anyone in London that Britain was holding its Indian Empire by force, so cheap were the administrative and military expenses of rule. Keynes served on the Royal Commission on Indian Finance and Currency in 1913. His plan for an Indian Central Bank, hailed by his teacher Alfred Marshall as a ‘prodigy of constructive work’ (Skidelsky,I, p.283), did not require an actual visit to India; nor did he ever repair the omission.
A liberal empire, self-governing in its settler parts, efficiently run for the benefit of its subjects elsewhere, and the whole set in a liberal world-trading system –this was the imperial and international ideal which Keynes inherited and accepted before the first world war. It was all to disintegrate, and with it Britain’s position at its head, over the course of Keynes’s lifetime.
The first world war shattered the 19th century liberal financial/trading system. In modern language, it reversed the trend towards globalisation and led, via the Great Depression, to the economic blocs of the 1930s. For Britain, this retreat into bloc economics culminated in the Ottawa Agreement of 1932, setting up the imperial preference system. Keynes contri buted nothing to this development. His brief comment on the results of the Ottawa Conference was disparaging: ‘instead of promoting freer trade by genuine tariff reductions within the Empire…it has riveted tariffs more firmly than before on all concerned…’ (CW, xxi, p.206)
Now that Britain was no longer in a position to conduct the international orchestra, Keynes became an economic nationalist, rather than an economic imperialist. He came to see some contradiction between maintaining the British Empire and Britain’s own self-interest. Should not Britain claim the same right of independent action for itself as the Dominions claimed for themselves? Specifically, Keynes resented Britain being the chief source of capital for countries which were simultaneously erecting tariffs against the import of British manufactures. In short, he never came to see the empire as a potential economic unit. This explains most of his quarrels with Hubert Henderson and others about the shape of the post-1945 economic order, which I have recounted in the third volume of my biography.
A key moment in his realisation that the claims of empire and those of British self-interest might conflict was an article he wrote called ‘Foreign Investment and National Advantage’, published in the Nation and Athenaeum on 9 August 1924. Keynes here denied that foreign investment by Britain necessarily served either the self-interest of the investor or the national interest. Its popularity was, rather the result of an institutional bias in favour of foreign and colonial loans.
The Trustee Acts came in for Keynes’s special attack. These restricted the type of investment which could be made by trustees of estates or charities to a ‘trustee’ list which included all British and colonial government bonds, but excluded practically all shares of private companies. Colonial governments could, consequently, borrow money in London more cheaply than British companies could. Many of these investment arrangements resulted from the operation of the Married Women’s Property Act of 1879, which was designed to protect married women from risky investments by their trustees. Their effect, Keynes wrote, was ‘to starve home development by diverting savings abroad and, consequently, to burden home borrowers with a higher rate of interest than they would need to pay otherwise’. The Treasury should, by license, ‘widen the list of admissible home investments and strictly..ration overseas borrowers’. (JMK, CW, xix, p.282)
Keynes’s suggestion that the empire was receiving what amounted to subsidised loans from the mother country drew strong protests in Canada and Australia. C.R. Fay, a fellow student of Keynes’s at King’s College, Cambridge, before the war, now Professor of Economic History at Toronto University, wrote to Keynes on 1 February 1925: ‘I hope you won’t think me patronising, but can’t you avoid using the word ‘colonial’ when applied to the Doiminions’. He continued: ‘Canada’s danger today is the ease of borrowing from the USA. An embargo by London..wd. be met by a deliberately handsome offer of funds from New York. They wd. give almost anything to woo Canada to their arms’.
Keynes replied testily on 19 February:
The word Colonial. What the devil am I to say? What is the adjective of Dominions? Domineering, perhaps…I do strongly resent the blackmailing attitude which the Dominions invariably take up whenever it is suggested that Great Britain should occasionally act in her own interest. Your reaction at once is to threaten that Canada will join the United States if we do not lend them at low rates of interest large sums which we cannot afford’. If on ‘broad general grounds’ it suited Canada to join up with the USA, it would do so, whatever Britain did. (Keynes Papers, PP/45)
Keynes was much too dismissive of the value of the imperial connection. Whatever price Britain paid for holding the empire together after the first world war was more than repaid in the second world war.
Keynes’s much closer links with Canada in the last six years of his life stemmed from Britain’s reliance on help from its empire for survival against Hitler and his own position in the British Treasury from 1940-6 as virtual dictator of external finance. In this story Canada played a role insufficiently emphasised by British historians and economists.
Canada was crucial to Britain’s war effort, especially in the period before Lend-Lease, when Britain, as a result of US neutrality legislation, had to pay in cash for all the goods it was buying from the United States. It was not just that Canada set up the British Commonwealth Air Training Plan, which trained many of the pilots who won the Battle of Britain. It was that without its ability to buy war goods from Canada by issuing sterling debt, Britain would have run out of external means of payment long before Lend-Lease became politically feasible. The figures explain why. By March 1941, when Lend-Lease became law, Canada had lent Britain $600m.(?) since the start of the war. In the same period, Britain’s gold and dollar reserves had fallen from $2bn. to $300m.
Canada’s sacrifice was more dramatic than these figures suggest. It lacked the industrial capacity to supply Britain’s war needs on its own. Most of what Britain ordered from Canada, Canada had to buy from the United States, paying cash, since, like Britain, it was a belligerent. In short, it received inconvertible sterling from Britain for war supplies for which it paid out convertible dollars to the United States. Canada’s reserves thus drained away like Britain’s. This supply of war material was kept going despite much anti-British feeling in Quebec, following the Royal Navy’s sinking of the French fleet at Mers-el-Kebir in July 1940. (For political reasons, Mackenzie King refused the British access to French gold reserves, shipped to Ottawa before the fall of France.)
Keynes’s aim, on the first of his six financial missions to the United States in May-July 1941, was to restore Britain’s reserves. What he tried to achieve was a deal, whereby part of the Lend-Lease appropriation just agreed by Congress, plus certain other already pledged sums, would be used to pay off $1bn. of Britain’s pre-Lend-Lease defence orders to US manufacturers not yet delivered, in return for which Britain would continue to order ‘non-warlike supplies’ outside Lend-Lease, paying for them in cash (that is, by means of dollar-earning exports). It was a typically brilliant Keynes ploy, designed to restore Britain’s reserves to the minimum figure of $600m, to repay the Canadian debt, and to secure for Britain and its empire partial financial independence from America in waging the war.* (JMK Memo. to H. Morgenthau, 16 May 1941, CW,xxiii, pp. 74-8). As I put it in my biography: ‘Keynes thought it better for Britain to buy more from the United States and have dollars to do it with than receive more and be entirely dependent on America’s goodwill’. (Skidelsky, 3, p.112)
*Britain’s pre-Lend lease contracts still ‘in the pipeline’ –either not paid for or for which only advance payments had been made- were worth $2bn. Keynes hoped to get $1bn. back through the mechanism described above, and part of the rest by means of a loan from the Federal Loan Agency, for which US-based British companies would be offered as collateral. The balance remaining would be paid off out of accruing trade surpluses made possible by Lend-Lease and modest mobilisation of overseas assets.
Prdictably, Keynes’s gambit failed: to maximise not minimise Britain’s dependence on Lend-Lease was the goal of both the US Treasury and State Department. The Lend-Lease machinery was developed to cover virtually all British purchases in the United States. This relieved Britain of any balance of payments problems during the war and enabled a modest build-up of reserves. But there was a price to pay, which was American control over Britain’s level of reserves and its export trade, and Article VII of the Lend-Lease Agreement –the so-called ‘consideration’- whereby Britain pledged itself to abandon all forms of ‘discrimination’ against US exports after the war. The point is that had Lend-Lease been confined to a more restricted range of goods, US leverage in these matters would have been less. Whether Britain could have earned enough from exports or other sources to pay for goods which the US Lend-Leased to it is another matter.
Britain’s debt to Canada was eventually absorbed in the Mutual Aid Agreement between the two countries, signed in 1943.Canada was being helpful in other ways. Britain had pledged to work with the United States for the elimination of discriminatory trade barriers –that is the Ottawa Preference System and the Sterling Area - after the war. In September 1941, Keynes produced a plan for a world clearing union, or bank, whose overdraft facilities would it make it possible to dismantle these barriers to trade. Harry Dexter White of the US Treasury produced a much less expansionist plan for an international stabilization fund. In May 1943 Canadian officials of the Bank of Canada, notably Graham Towers, the Governor, and Louis Rasminsky, chairman of the Foreign Exchange Control Board, offered a synthesis of the two schemes. Keynes dubbed it ‘off-White’ and thought its publication premature. But it paved the way for the Bretton Woods compromise. (CW,xxvi, pp.280-3) Keynes’s respect for Graham Towers went so far that in 1944 he proposed him as Governor of the Bank of England, in succession to Montagu Norman. At the Bretton Woods conference of July 1944 which set up the IMF and World Bank, Rasminsky played a key role as ‘helpful fixer’ on the main committee, Committee A.
Keynes’s first visit to Canada, immediately following the Bretton Woods Conference, was to negotiate an increase in the Canadian Mutual Aid appropriation for the year 1944-5. In a fortnight’s conversation, Keynes and British Treasury official Sir Wilfrid Eady succeeded extracting a further $655m.from the Canadians. It was on this visit that Keynes fell in love with Canada, and the Canadians fell in love with his wife, the ballerina Lydia Lopokova. When their aeroplane landed at Ottawa, the High Commissioner, Malcolm MacDonald and the Minister of Finance, together with their officials, all in black jackets and pin-striped trousers –the temperature was over 100 degrees Fahrenheit - waited on the runway to receive them. Emerging first, sumptuously dressed in a brown fur coat and hat, Lydia rushed towards Malcolm MacDonald, whom she had never met, flung her arms round him, and before he could say a word, exclaimed in a loud voice ‘Oh, my dear High Commissar, how are you? I dreamt zat I was lying in bed, and zat you were lying in my arms’. Keynes followed behind her with cordial, though more restrained, greetings. When preliminary financial conversations started in Keynes’s suite at the Chateau Laurier hotel, Keynes found he had misplaced the key to his official red box. There was a knock on the study door, and Lydia slipped in. As Malcolm MacDonald tells it, with perhaps a little embroidery for dramatic effect:
She wore nothing but a short white chemise (presumably with a pair of brief drawers below) which hung flimsily round her otherwise bare body…casting a half-guilty, half-mischievous look at Keynes as she said, ‘Oh Maynard darling. I am so sorry. You did give me ze key; and I forgot zat I hid it for safety beneath my little bosoms’. At that she clutched in her hands a ribbon hanging round her neck, and as she lifted it over her head raised from between her breasts –which so far as we could detect were not quite so small as she suggested –the lost article….She blew him a kiss, turned in a ballerina’s pirouette on her toes, glided through the door, and closed it behind her’. (Skidelsky, 3, 359)
Keynes was struck by the contrast between North American affluence and British penury. ‘On this continent’, he noted, ‘the war is a time of immense prosperity for everyone. They often ate beefsteaks, and Lydia went on a shopping spree. Keynes was struck by the unfairness of it. Britain would end the war bankrupt, North America flush. Surely some retrospective balancing of the sacrifice was only just?
It was a Canadian initiative which prodded Keynes to write his last major state paper. In February 1945 Graham Towers persuaded his government to offer Britain a post-war credit of $1.2bn. at 2 per cent for three years after the war, repayment not to start till after ten years, and with a waiver clause on balance of payments ground. The main motive for this offer was give Britain the interim means to pay for the goods it had been receiving from Canada without payment under wartime Mutual Aid arrangements. (In 1944 Canada gave Britain $1.2bn. worth of supplies, but received only $111m. in return) With the addition of a credit from the United States, Britain would be freed from the balance of payments constraint to join a concerted or multilateral move towards free trade. Canada would benefit from reductions in US tariffs on Canadian goods, while avoiding complete dependence on the US market. When Churchill invited the Canadians to Britain to discuss their offer, Keynes retired to Cambridge to draft a memorandum on ‘Overseas Financial Arrangements’ for the first post-war years.
The story of the colloquium at King’s Cambridge, on 19 and 20 May 1945, when Keynes expounded his plan over two days to a Canadian delegation led by Graham Towers, Bill Mackintosh, acting deputy minister of finance, and Hector Mackinnon, chairman of the Canadian Tariff Board, has been memorably recorded by Douglas LePan, a young official at the Canadian High Commission in London who acted as secretary for the Canadian group. Keynes said that the ‘sweet breath of justice would be felt to be blowing’ if a way could be found of retrospectively redistributing the costs of the war. Le Pan wrote:
I had no difficulty in remembering that sentence. Nor in remembering Keynes’s look as he said it. His nature was protean, and his range of expression. He could be magisterial, analytic, scornful, withering, contemptuous, insinuating, persuasive. But as he lifted his head to speak of the ‘sweet breath of justice’, I was reminded of the sweetness and youthfulness I had noticed in his expression that first evening in Hall when I was sitting beside him. There was something cherubic, almost seraphic, about his smile. And there was something else that is difficult to speak about, the word has been so debased. His charm. .( Douglas LePan, Bright Glass of Memory,1979,p.91. For the colloquium as a whole, see ch.2)
LePan’s last memory of that weekend was walking down the Backs to the river. Bill Mackintosh, said ‘How beautiful it is’. Keynes, a step or two behind him, hesitated for only a moment. ‘Yes, it is beautiful, isn’t it? And we want to keep it, you know. That’s why you’re here’.
I don’t claim to be an expert in , or even to know very much about, Canada’s post-war economic history. But I found the following comment by Michael Webber interesting: ‘..much economic policy in semi-peripheral countries like Australia and Canada is copied from other places, whatever the differences in local economic circumstances. What the USA does today, Canadian and Australian policy makers are considering tomorrow’.(M. Webber, ‘The Canadian Economy in Late Twentieth Century Capitalism’, Studies in Political Economy 62, Summer 2000, p.165) Had this passage been written fifty years ago, the UK, not USA, would have been the exemplar. It was Bob Bryce, Keynes’s student at Cambridge in the early 1930s, who brought the Keynesian Revolution to the Canadian Ministry of Finance in 1938. (Wynn Plumptre, another Keynes student, was also influential.) The Canadian Government’s commitment to a ‘high and stable level of employment’ in its White Paper of 1945 is modelled on the identical commitment of the British Government’s Employment White Paper of 1944, as indeed was the main instrument chosen, fiscal policy. Very Keynesian, too, was the growth of a mandarinate in the Ministry of Finance and Central Bank, which translated the new macro-economic wizardry for their political masters.
Keynesian policy was, from the start, more acceptable in Canada than in the United States, where the ‘new economics’ encountered anti-British, as well as anti-socialist, resistance. Canada followed Britain, rather than the United States, in the design of its social security and health-care systems.
Beyond this it is hard to trace a specific British effect on postwar Canadian policy. Shifts in Canadian macro-policy seem to follow pretty faithfully both British and American trajectories: minimalist under St.Laurent in the 1950s, interventionist under Pearson and Trudeau in the 1960s and 1970s, more monetarist under Mulrooney in the 1980s. Common to the USA, Britain, and Canada was the crisis of ‘minimal’ Keynesianism at the start of the 1960s, when the policy of fiscal surpluses to restrain inflation gave way to the policy of fiscal deficits to reduce unemployment.
Nor does Canada’s performance in the postwar period, in terms of growth, employment, inflation, investment, etc, diverge significantly from the OECD average.
Two features of the post-war Canadian economic experience interest me, though the following remarks are purely tentative. First, it seems more difficult to run a Keynesian fiscal policy in a federal than in a unitary system, and particularly one like Canada’s, where the Provinces have considerably more fiscal autonomy than they do in the United States. An eccentric influence on the fiscal policies of Alberta and British Columbia was the ‘Social Credit’ theories of Major Douglas, which Keynes had criticised, though sympathetically, in his General Theory. (CW,vii, pp.370-1) One summary of the 1950s is: ‘Ottawa was helping restrain inflation while the provinces were helping to create it’.(Robert Bothwell, Ian Drummond, John English, Canada Since 1945: Power, Politics, and Provincialism, Revised ed.1989, Univ of Toronto Press,p.170) This leads me to wonder if Canada’s macro-problem is built into the structure of the Canadian state.
The second peculiarity was the ‘temporary’, float of the Canadian dollar, which actually lasted twelve years, from 1950-1962. This was designed to insulate the Canadian economy from its exposure to fluctuations in American speculative balances and commodity prices. But it also claims attention as the first example of Milton Friedman’s influence on economic policy. Is this the point at which Chicago, USA started to oust Cambridge, England as the source of economic wisdom? Probably not. The fact that the Canadian dollar kept its parity with the US dollar for most of the period of the float, seemed to confirm Friedman’s hypothesis that floating would tend to be stabilising rather than destabilizing – a contention which, incidentally, goes back to Keynes’s own Tract on Monetary Reform (1923).
The Canadian experience of the floating dollar reinforced the academic case for the generalised floating which followed the breakdown of the Bretton Woods system in the early 1970s. However, generalised floating has been much less successful than Canada’s early experience, with wide currency swings between the major currencies, unrelated to fundamentals. More recently, Canada’s experience of floating its currency against that of its mighty neighbour has attracted the interest of British eurosceptics who want to preserve the pound sterling as an independent currency.
Since 1970 Canada’s floating dollar has been a falling dollar, something I am, of course, very much aware of as I collect the Gelber prize. Why has it lost so much of its value? Why is Canada’s income per head significantly lower than the United States’s? Perhaps you will gi ve me the answers.
It’s time to conclude this somewhat offbeat narrative. Over the postwar period, as it seems to me, the importance of the British connection steadily diminished. Although the last vestiges of the imperial preference system were not swept away till 1979, Britain absorbed an ever declining fraction of Canadian exports. In the 1970s Britain joined the European Union and Canada NAFTA. The dwarfing of Britain’s economy and world position and the increasingly fictional character of the Commonwealth rendered Britain increasingly useless as a counterpoise to the United States. Both Britain and Canada, to adapt Acheson, lost an empire and had to find new roles. Despite its complicated relationship with the European Union, Britain’s role as a semi-independent partner of the United States, and diplomatic shuttlecock has gradually been clarified, not least because Britain retains significant military assets and world-wide connections, and because it has rediscovered something of its old economic vitality.
My impression is that the search for a Canadian role still continues.Will monetary Union be the inevitable long-term consequence of NAFTA? Has Canada got a future as an independent country? Has it still got a distinctive voice? Does anything of value still remain in the British connection? I end as I started, with questions.
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