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of
®tteura,
August 14th, 1945
The Hon. Marriner S. Eccles,
Chairman of the Board of Governors,
Federal Reserve System,
Washington.
Dear Mr. Eccles,
A Conference between the Government of the
Dominion and the Governments of the nine Provinces was
recently held in Ottawa. QQ that occasion the Dominion
Government gave the broad outlines of its post-war reconstruction policy, indicated quite specifically the
course which it would wish to follow in respect of a
social security programme, and made a number of proposals regarding arrangements which it would be desirable
to conclude between the Dominion and the Provinces• All
of these matters are dealt with in the brief presented
by the Dominion. I believe that you may be interested
in having a copy of this document, and I have therefore
forwarded one to you under separate cover.
In addition to the brief mentioned above,
the Dominion also placed in the hands of the Provinces
a number of pamphlets containing information which
would assist the Provinces in considering the proposals.
A list of these publications is attached hereto. If
you wish to obtain copies of any one of them, will you
please advise me accordingly•
After hearing the Dominion proposals, the
Conference adjourned until an unspecified date to give
the Provinces time to formulate their views.
Yours sincere!;
DOMINION-PROVINCIAL CONFERENCE, 1945•
Reference Books
Comparative Statistics of Public Finance
Dominion of Canada, Provinces and
Municipalities, 1933, 1937, 1939
1941, 1943Dominion Subsidies to Provinces
Economic Controls
Agriculture
Personal Income Taxes
Succession Duties
Public Investment
Corporation Taxes
Dominion-Provincial Co-operative Arrangements
Health, Welfare and Labour
Capital Formation (not yet published)
August 2$
Dear Governor Towers:
Shis i s t o thank you for your l e t t e r of August
Hi. and for the copy of the Dominion brief, which you are
sending me under separate cover, in regard to postwar reocmatruotiozx policy. I shall be particularly interested
to see i t becou&o undoubtedly tb© problanft eonfrooting you
are ^ s r j similar to H M M vfcleh wo ans now facing.
If i t i& not too wuoh of an imposition we would
greatly appreciate having copies of the reference books
or paiqphleta vhloh you kindly listed, for they cover subjeots of grsat interest and eoiioarA to us and w i l l , I em
sure, be valuable source material for us and our staff*
2 hope I nay liave the pleasure of seeing you
soon in oaao you ar^ paying a v i s i t to Washington. In
the meantime, lot me thank you again for the material
referred to in your l e t t e r •
Sincerely yours.
the Honorable 0* F* Towers,
Governor,
Bank of Canada,
Ottawa, Canada.
T:b
ECONOMIC CONTROLS
REFERENCE BOOK
FOR
DOMINION-PROVINCIAL CONFERENCE
ON RECONSTRUCTION
ECONOMIC CONTROLS
REFERENCE BOOK
FOR
DOMINION-PROVINCIAL CONFERENCE
ON RECONSTRUCTION
CONTENTS
PAGE
FOREWORD
PART I—WARTIME PRICES AND TRADE BOARD
,
5
7
1. Introduction
7
2. Prices
7
3. Supply and Distribution
15
4. Rentals and Real Property
19
5. Consumer Credit Controls
24
PART II—WARTIME INDUSTRIES CONTROL BOARD
27
PART III—DEPARTMENT OF LABOUR
29
FEDERAL WAGE CONTROL
29
40486—1J
FOREWORD
This reference book has been compiled under the
direction of the Committee on Economic Controls of
which F. P. Varcoe was Chairman and C. Stein, Secretary, and contains submissions from the Wartime Prices
and Trade Board, War Industries Control Board, and the
Department of Labour. The purpose of this material
is to describe the situation which brought various wartime economic controls into being and to outline the kind
of problems which probably will continue to exist in these
fields during the transition period. The common genesis
of all controls is, of course, war-created scarcities and
a common purpose to prevent inflation. These controls are consequently of a temporary nature and adjustments are continually being made to meet the
changing situation. As a result of this the material in
this reference book differs somewhat from that in the
other volumes, since it is concerned with the application of policy to a situation in day to day process of
adjustment. A detailed account of the kind of problems
which exist and which must be anticipated in the near
future is provided in the Wartime Prices and Trade
Board section and it was not thought necessary to give
a similarly detailed account for the other types of control since they arise from the same causes, pursue the
same objectives, and face fundamentally similar problems. Some distinctive features of the War Industries
Control Board and the National War Labour Board
controls are discussed in their respective sections. In
addition, some account is given of the wartime agricultural controls in the reference book on agriculture.
PART I
WARTIME PRICES AND TRADE BOARD
1. INTRODUCTION
reconstruction. For these reasons, price control in the
transition period is of vital importance to reconstrucThis reference paper is concerned with a survey of tion and employment policies.
some of the economic problems which will or can be
The major problems of concern to the Prices Board
expected to concern the Wartime Prices and Trade Board
during the transition period. Consideration is given to in the transition period fit into four categories—prices,
various measures which might be adopted to cope with supply and distribution, rental controls and consumer
these economic difficulties, while at the same time work- credit controls. This memorandum attempts to outline
ing toward the orderly removal of the controls now some of the broad questions which will arise and suggests
administered by the Board. It is against the back- approaches which might be adopted.
ground of these war-created and war-generated econnomic problems that the constitutional question should
2. PRICES
be viewed. Constitutional difficulties in coping with
such transitional problems are not dealt with in the
RISK OF INFLATION
following pages.
The danger of inflation has not disappeared with the
The Prices Board is a temporary agency established
to deal with certain economic problems which are a part defeat of Germany and may continue for some time
of or which result from the war. Since it was set up as after the defeat of Japan. Since it is not possible to
a result of emergency conditions and since it operates forecast the precise course of events, both military and
under the emergency powers of the Dominion, it is economic, it is not feasible to estimate how great the
assumed that the activities of the Board will be cur- danger is likely to be. Nevertheless, it is worth while
tailed and finally eliminated with the passing of the reviewing the nature of the forces which might foster
emergency conditions which it was created to meet. It inflation during the transition period, notwithstanding
does not follow, of course, that the Wartime Prices and the deflationary effects of war contract cancellations.
Trade Board as a distinct organization should continue
TFar Inflated Costs.—For some time, rising costs of
until all of the controls which it now administers have production and the threat of rising costs have been the
been wound up. It might be appropriate to transfer its most serious pressure on the price ceiling. There is no
remaining functions at an earlier date to other govern- doubt that this type of pressure is continuing into the
ment agencies, such as the Department of Reconstruc- transition period. It is particularly great in respect to
tion.
goods, the production of which has been restricted or
It is perfectly clear, however, that the passing of the eliminated as a result of war needs. It will be fortified
emergency conditions which gave rise to the controls in many industries by the decline in the volume of
administered by the Board will not coincide with the tota'l production brought about by ^curtailed war productermination of hostilities. The pressures on prices and tion. So long as the demand for civilian goods remains
supplies generated by the war will not automatically strong and supplies of many articles are inadequate to
cease when the fighting stops, even though many short- meet it, business will be encouraged to press for recogniages may have been overcome or eased before all the tion of higher costs in the form of price increases. It
fighting is over. A number of the controls (and particu- is true that many of the increases in costs which have
larly the price controls) are likely to be needed not only occurred since the basic period (September 15th to
until the defeat of Japan, but for some time thereafter. October 11th, 1941) will prove to be temporary. It is
In the transition period, which is regarded here as the also true that competition in many fields will in time
period in which the shift is made from war production become much keener, thereby helping to keep prices
to civilian production, roughly beginning at present and down. But these developments will occur gradually,
ending some time after the defeat of Japan, controls affecting some industries quickly and others only slowly.
will continue to be needed to prevent rising prices and During the early stages of the transition period at least,
some controls will be required to safeguard the essential it seems highly probable that the pressure of higher
needs of civilians. Moreover, leaving aside possible production costs will remain a major threat to the mainconstitutional difficulties, price policy in the transition tenance of the price ceiling.
period is taking on additional significance as an important element in the Government's plans to promote an
Pent-up or Deferred Demands.—The extent of the
effective and healthy reconversion of the economy to pressure for higher prices will depend in large measure
peacetime production. If prices and costs can be kept on the size of accumulated consumer and business defrom rising suddenly, if the readjustment of the Cana- mands. After more than five years of war, large dedian price level to higher price levels abroad can be ferred needs have undoubtedly piled up, particularly in
managed in an orderly and gradual manner, the cause the field of durable and capital goods. These include
of high employment will be materially advanced. An housing and household appliances, automobiles, farm
inflationary spurt in prices, on the other hand, could do equipment and buildings, railroad equipment and
more than almost anything else to impede the forces of trucks and a wide range of deferred repairs and.replace-
ments in industry and in public utilities such as
highways. The buying power to support much of such
deferred demands and to create new demands already
exists in the form of cash, government obligations, and
improved credit standing resulting from repayment
of debt during the war (e.g. many farmers and
corporations). Furthermore, ppblic buying power will
be sustained by the payment of soldiers* gratuities
and credits and family allowances. The public's buying
power would also be increased by any relaxation of the
personal income tax, particularly in the lower income
brackets. In other words, the financial basis exists for
a buying and speculative spree of unexampled proportions. The extent to which financial claims will be
translated into current demands for goods and services
can only be guessed: much depends on the scale and
duration of the continuing war against Japan, on conditions in the United States and Great Britain, on fiscal
policy and price control, on reconstruction policies, and
on the public's attitude toward the future. Such demands, however, should not prove unmanageable,
although they will undoubtedly cause difficulty in certain respects, such as (for example) housing supplies
and household appliances, and men's clothing and the
like.
Relief and Export Demands.—In addition to pent-up
domestic demands, the requirements of export markets
and UNRRA may remain substantial for some time
after war production has been curtailed. The impact
of such requirements, both directly and in their effect
of restricting supplies available to Canada from other
countries, is already serious in regard to certain foods
and textiles and may also have important repercussions
on lumber, pulp and paper products and possibly certain
capital goods. In addition, it should be noted that
Canada's interest in establishing lasting export business
may result in a further drain of goods which are not
immediately plentiful from the domestic market.
Supply Bottlenecks.—Pressure for higher prices may
also be accentuated by the continuance of war-created
shortages and "bottlenecks", for the curtailment of war
contracts will not immediately remove all shortages of
civilian supplies. Some imported materials, such as
rubber, tin and sugar, are likely to remain in short
supply for a considerable time to come. It will not be
feasible to get all the component parts used in the
production of metal articles and obtained from the
United States as quickly as they are needed in the
early stages of transition. In the case of such articles
as radios, electric refrigerators, and automobiles,
Canadian production will be strictly limited by the
availability of such U.S. components and thus 'by the
reconversion policies of the United States. It may be a
considerable time 'before the labour shortages in the
lower-paid industries in Canada (e.g. bricks and knit
goods) are overcome). Industries requiring large numbers
of able-bodied men (e.g. forestry and farming) may
continue for some time to have difficulty in getting
enough workers. It is quite conceivable that because
of low wages or the unattractiveness of the work, some
industries may be affected by a shortage of help even
when a considerable amount of unemployment exists.
Higher Prices Abroad.—Because of the efficacy of
the Canadian stabilization program, the wartime increase
in the price level has been somewhat -less in Canada
than in the United States and in Great Britain, after
allowance for changes in exchange rates. While there
are very important -advantages in this position, a premature removal of price and other controls would rapidly
raise the prices of a wide variety of commodities in
Canada and have a marked: effect on the whole Canadian price level. It should also be noted that without
appropriate export controls domestic supplies of any
Canadian article, the price of which was significantly
lower than in the United States, would be seriously
threatened.
Possible Removal of Subsidies.—The sudden and
premature removal of subsidies would also operate to
raise prices. Subsidies now being paid to keep prices
down are the direct equivalent of roughly 6 additional
points on the cost of living index—3 points being the
equivalent of the subsidies paid through the Department of Agriculture and the Wheat Board, and 3 points
of those paid through the Commodity Prices Stabilization Corporation, including consumer subsidies.
Speculation.—If the above factors were to lead to
rising prices and if businessmen and the public got the
impression that prices were getting out of hand, the
resultant growth of speculation could seriously accentuate the increase. It is in such circumstances that a
great volume of liquid financial claims might be rapidly
translated into current demands for goods. Speculative
activities, it. will be remembered, greatly aggravated the
inflation of 1919-20.
Deflationary Influences.—Against these inflationary
factors will stand the major and pervading influence of
sharply curtailed war contracts. This factor will reduce
the stream of income payments since it will give rise
to transitional unemployment, down-grading, transfers
from higher-pay to lower-pay industries, and a sharp
curtailment in overtime. Unemployment, and the fear
of unemployment, would reduce and inhibit spending. It
is, therefore, clear that the curtailment of war contracts
could be relied upon eventually to break an inflationary
boom. The difficulty is that it probably would not prevent an initial inflation of prices. Such an inflation,
however short-lived, would be followed by an abrupt
deflation which would gravely delay reconversion and
produce wide-spread unemployment.
The problem of relaxing price control centres around
the timing. The danger of a general upsurge in prices
may not last for long but it is likely to be a very serious
risk in the early stages of transition when the inflationary
forces are at their maximum strength and before the
influence of curtailed war production has had a chance
to exert an opposing influence throughout the economic
structure. As time goes on the risk of a general rise
in prices will diminish but upward pressures on particular
groups of prices will continue longer.
Experience in the Last War.—In this regard, the
economic experience after the end of the last war is of
particular interest. The price level and the cost of living
which had risen markedly during the war levelled off
for a few months and then rose more sharply than ever
for over a year. The cost of living index, which in
November 1918 was 54 per cent over July 1914, had
risen to a point 92 per cent above the pre-war level by
July 1920. Wholesale prices which had doubled during
the war reached a point 155 per cent higher than the
pre-war level in May 1920. The decline which followed
this post-war inflation was even more abrupt and had
widespread and disruptive consequences. By the latter
part of 1921, the cost of living had dropped by 28 per
cent from its peak, wholesale prices were down 41 per
cent, and prices of farm products were practically halved
(two of the main farm commodities, wheat and steers,
were down about 60 per cent). This drastic decline in .
prices greatly increased the burden of debt (particularly
to the farmers) and resulted in heavy inventory losses
and widespread commercial failures. Factory employment dropped sharply—by 27 per cent from 1920 to
1921—and pay rolls decreased by 34 per cent.
Conclusion.—It may be that the danger of inflation
in the period of transition will not be as great as was
the case after the last war. While it is true that the
diversion of resources to war purposes has been much
greater and while the pool of accumulated buying power
is much larger to-day than in 1919, the techniques for
controlling inflation (fiscal policy, price control, organization of supply, etc.) are much more highly developed
and more widey accepted and understood. Moreover,
the present war is ending in two stages which should
facilitate an orderly transition both because the war
stimulus to the economy will be cut off less abruptly
and because a substantial amount of reconversion may be
achieved before all hostilities have ceased. It is also
possible that the memory of the last war and of the
depression of the 'thirties is fresh enough to induce some
feeling of caution on the part of the business community
and the public. But too much reliance should not be
placed in these possibilities: memories are short, there
may be a general feeling of revulsion against anti-inflation controls, and plausible arguments will be advanced
to prove that the times are different and that inflation
is not a danger. It would be folly to assume that all
would be well if the controls were to be removed as soon
as the demands of war were curtailed. Even if a general
inflation did not result, there would be a series of price
increases based on temporary shortages and demands
which would distort the price structure, reduce domestic
and export opportunities and thus restrict production and
encourage unhealthy development (unhealthy in the
sense that it would have little chance of permanence).
In summary, an inflation in the transition period would
aggravate the problems of readjustment and accentuate
the forces of subsequent deflation.
PRICE POLICY IN THE TRANSITION
To carry out the Government's intention of preventing inflation, it is clear that price control will be necessary
for some time, probably for a period extending beyond
the defeat of Japan. The advent of the transition period,
however, is substantially changing the economic environment to which price control must be adapted and
calls for a reassessment of price control policy and
methods.
Altered Considerations of Policy.—The transition
period, of course, does not change the primary purpose
of price control. That purpose is still to prevent a war40486—2
generated inflation, the threat of which remains imminent
and the consequences of which would be most harmful,
and even disastrous, for the people of Canada. Effective
control of prices can protect the economy from disruption
and can greatly facilitate an orderly and effective reconversion to peacetime activities. To achieve this
double objective, however, price control must be sufficiently adaptable to meet the changing needs and circumstances of an economic structure going through an
enormous and difficult transition. It must give due
emphasis to factors which were absent or less important
when the economy was fully mobilized for war and at
the same time it must be administered with a view to
its ultimate removal at the earliest date consistent with
the objective of preventing inflation and dislocation.
The decline of war production has added to the considerations motivating the administration of price control in two fundamental respects. The first is that employment considerations have become a major factor
in economic policy. So long as the war program was at
or close to its peak the Government's problems were not
unduly complicated by questions of maintaining employment. Relief from the provisions of the price ceiling
was necessary when the essential requirements of the
civilian population and of the war program were threatened. Relief was not necessary to provide employment
and, while the Board did not ignore employment considerations in particular circumstances, relief was generally confined to producers and importers of essential
goods and services. But now that war production is
declining sharply, it is no longer feasible to distinguish
between essential and less essential or non-essential production. As the transition proceeds and as the leading
objective of economic policy becomes a high level of
employment, production which was regarded as nonessential becomes highly desirable and indeed essential
from the point of view of employment. Thus relief must
be provided when it is genuinely needed to permit production almost regardless of the nature of the product.
Price ceilings must be set for the large variety of goods
that have been out of production and non-essential
during the height of the emergency so that reconversion
may proceed as rapidly as materials, manpower and
equipment become available.
The other respect in which the problems of price control have been altered is that the emphasis has now
shifted to planning for a removal of controls. The
ultimate objective is to remove price control as the
danger of inflation passes in a manner that will not
result in serious disturbance to the economic structure.
That is to say that ceiling prices and "free" market
prices should be fairly well in harmony when price
controls are removed. This in turn means that
major increases in costs which are likely to be of
a lasting character and which are not offset by other
reductions in costs will have to be gradually recognized
in the ceiling price structure. Subsidies and other artificial means of keeping prices down should be gradually
eliminated: in some cases this will occur automatically
but in others price increases are likely to be necessary;
for example, it may well be that higher costs of some
imports will persist and may necessitate some price
adjustments. Thus the Prices Board must give increasing consideration to such factors in the administration
of price control and must make a deliberate effort to
minimize subsidy payments even at the cost of some
price increases. (The problems arising from the existence
10
of higher prices in the United States and Great Britain,
and the question of subsidies are discussed in the following sections.)
Importance of the "Basic Period" Principle,—In view
of these additional considerations, it might be claimed
that it would be more appropriate and realistic for the
Government to abandon its present method of price
control which is based in principle upon basic period
prices (i.e. the highest price prevailing for the individual
seller during the period from September 15 to October 11,
1941 with appropriate allowance for changes in quality
and nature of the item concerned) and to establish in
its place a system designed to give clear recognition to
increased costs as grounds for price increases. In other
words, instead of adhering to basic period prices and
permitting adjustments only when financial need could
be demonstrated, the Prices Board would 'be required
to permit price advances as a matter of right whenever
costs could be shown to have increased.
For a number of reasons, such a change would be
highly undesirable. In the first place, general recognition of cost increases as justification for correspondingly
higher prices would undoubtedly result in numerous and
significant price advances. Such price increases would
raise costs of producing other goods and services and
would in turn become the justification for further and
more numerous price increases. So long as inflationary
pressures remain great, general recognition of increased
costs in pricing might readily permit the development
of the very sort of cumulative advance in prices and
costs which it has been the Government's objective to
avoid. Secondly, such a departure from the basic period
principle would reduce the incentive to keep costs down,
which is an important element in effective price control
and is of particular significance in view of Canada's
dependence on international trade. In the third place,
in permitting higher costs to be generally translated
into higher prices the basis of pricing policy would
become less and less clear and the difficulty of setting
new prices would become increasingly great. Costs are
difficult to determine and they are even more difficult
to forecast. They vary from one producer of the same
product to another; they vary from month to month and
in some respects are now inflated by factors which should
prove to be temporary. General recognition of cost
increases would gradually destroy the basic period
anchor of price control and would substitute what would
ultimately amount to a system of cost-plus pricing
which would be both ineffective and administratively
impracticable. Thus, the final objection to departing
from the basic period principle is that the Prices Board
would be steadily driven toward setting fair rates of
profits in each branch of industry and trade—a task
which would not only be impracticable from an administrative point of view but which would be inconsistent
with the emergency character of the Government's
responsibilities in this field.
Criteria for Relief.—It is true, of course, that some
cost increases must be taken into account in the administration of a ceiling anchored to basic period prices.
When an industry claims that part or all of its production is threatened or restricted by the maintenance of
ceiling prices, the Prices Board must examine its case
and determine whether or not relief (either in the form
of a price adjustment or subsidy) is necessary. But while
the Board has authorized a substantial number of price
adjustments and subsidy payments in situations where
needed production was involved, it has never accepted
the mere fact of higher costs as justification for price
increases.
It has never been feasible to set out precise formulae
covering the standards which are used to determine
whether or not relief should be granted and, if so, how
much. Many considerations are involved and each case
has its own peculiarities, and as pointed out earlier these
considerations have been further complicated by the
advent of the transition period. The Prices Board works
on the principle that basic period prices are to be main- •
tained and discourages applications for relief wherever
feasible. Unless the industry concerned can demonstrate financial need, either present or developing, the
Board cannot grant relief. Representations that costs
have increased or are about to increase are not regarded
as relevant except as supporting evidence that the industry is having, or is likely to have, difficulty in continuing
its operations. Even when an industry's need of relief
is recognized by the Board, it does not follow that sufficient relief will be given to compensate the industry for
the full increase in its costs or to place it in a position
where it can make "normal" or "standard" profits. In
short, unless there are distinctly anomalous circumstances, the Board considers applications for relief in the
light of the present or prospective financial position of
the industry as a whole, and not on the basis of particular costs or of the profitability of particular types of
production within the industry. The difficulty of judging the need for relief has been much increased by the
changing considerations of the transition period. In the
final analysis, most decisions as to whether or not relief
is needed and as to its extent are matters of judgment.
This has been the case in the past and will be even
more the case in future. Even if all the facts concerning
the existing position of an industry are available, and
they seldom are, the outlook can only be estimated and
the production outlook is more relevant to the case for
relief than the current position. That being so, decisions
as to relief involve appreciable risks. It is often argued,
for example, that failure to provide relief will result in
curtailing production. But the mere statement to this
effect by the industry concerned, even when supported
by detailed operating statistics, is not necessarily conclusive, since it may be used as a bargaining point and
may underestimate the ingenuity of the business or take
too conservative a view of the outlook for sales volume.
Special Problems of Reconversion Pricing.—The most
difficult problems of price fixing are those of determining
appropriate ceiling prices for goods whose production
has been suspended or sharply restricted by the war
program, particularly capital and durable consumers'
goods. The problem centres in those industries which
have been heavily engaged in war production, many of
which are experiencing sharp declines in war contracts.
These industries have little or no recent operating experience in making civilian goods on which price fixations
may be based,, and they frequently claim that the basic
period ceiling prices for such goods are no longer relevant. They point to substantial wartime increases in
costs, especially in regard to labour, and to the marked
reduction in their volume of production resulting from
curtailment of war contracts with a consequent increase
in burden of overhead charges.
11
AVhile such considerations cannot be disregarded,
they can readily be over-emphasized. It is true that cancellation of war contracts may have the immediate effect
of raising unit costs in a number of industries, and its
impact will be particularly apparent during the changeover when war production has ceased and civilian production has not yet reached a substantial volume. For
some industries, of course, there is no possibility of fully
replacing war business with civilian business, though
in the majority of these cases the additional investment
has been largely financed by the Government or given
special depreciation allowances with the result that much
of the overhead is not a charge on the business concerned.
On the other hand, the curtailment of war output will
reduce costs in a number of important ways. Though
general reductions in wage rates are not anticipated, real
labour costs may be expected to decline, as more skilled
and proficient workers from the armed forces and munitions plants return to their civilian occupations, as labour
turnover and absenteeism decrease, and as overtime
work becomes unnecessary. Furthermore, as was pointed
out in the Prices Board's last Annual Report: "cost of
some materials, inflated by the necessity of using substitutes or by war risk insurance on shipping, should also
decline, and bottlenecks and delayed deliveries of supplies will be overcome. In addition, it is reasonable to
expect some reductions in the costs of management, as
business gets the opportunity to re-examine iis operations
and purchasing in the less urgent atmosphere of peace".
In these circumstances, the Government has continued to adhere to the principle of basic period pricing
for "reconversion" goods as well as for other goods and
services, fully realizing that a considerable number of
price adjustments may have to be made without precise
or satisfactory criteria on which to base them, Basic
period prices are the only practicable anchor for price
control - short of a system of cost-plus pricing, and the
objections to this latter system are particularly great in
industries where present costs are frequently inflated and
where future costs are so difficult to determine.
It has been claimed that adherence to the principle of
basic period prices is too rigid a form of price control to
fit the needs of reconversion in that it may hamper
business in the development of new and resumed lines.
The experience of the Prices Board does not support
such arguments. Procedures for relief have provided' for
flexibility and there is little evidence to support the view
that the producer's genuine difficulties have been disregarded. While it is much more difficult to apply these
procedures to new and resumed production than to goods
that have been produced throughout the war and while
the area of judgment is necessarily much wider, the
Government is strongly -conscious of the necessity of
achieving an orderly reconversion and it is fair to say
that the tendency is to give the applicant for relief the
benefit of reasonable doubt.
Conclusion.—There is no question that the transition has added to the difficulties of administering price
control The Prices Board has to steer a course between
the menace of inflationary price advances and the
danger of undue price rigidity. It must adhere to the
basic period principle for lack of any other workable
standard and yet it must permit sufficient relief from the
rigid application of the price ceiling to facilitate a
smooth and rapid reconversion. It must protect the
interests of the consumer without retarding the expansion
of civilian production. In the view of the Government,
40486—2£
the danger of undue rigidity is not a serious one. Though
the needs of the transition, and high employment do
require a reasonable degree of flexibility, those needs
would be badly served by a serious weakening in price
control "To keep up employment in the postwar, the
volume of production and sales of civilian goods must
be greatly enlarged. To assure a large and continuing
volume of civilian production in turn means that prices
must be kept at reasonable levels. This is particularly
true in a country like Canada which depends heavily on
export trade, both directly and indirectly in the sense
that the buying power of her domestic market is closely
related to the export demands for farm products and for
the products of the other extractive industries. To attain a sufficient volume of exports, prices must be competitive. To enlarge the domestic market, for durable
goods in particular, prices must not get seriously out of
proportion to the income of farmers and other producers1
whose returns depend so heavily on external demands."
RELATION OF CANADIAN PRICES TO PRICES IN OTHER
COUNTRIES
The task of price control in the transition period is
further complicated by the fact that the Canadian price
level is, on the average, relatively lower than the price
levels of the United States and the United Kingdom.
Taking the relationships between price levels in the
three countries prevailing in 1935-39 as the basis of
comparison, it appears that the Canadian price level
to-day is roughly 10 per cent lower than that of the
United States and considerably more than 10 per cent
lower than that of the United Kingdom.
A rough calculation comparing the wholesale price
indexes and 'cost of living indexes, adjusted for changes
in exchange rates since the period before the war, is
given below for the year 1944. (There has been no
major change since.)
COMPARATIVE PRICE INDEXES
(Base 1935-39 average = 100)
Canada
Wholesale Prices...
Cost of Living
133
119
United States
in Can. $
equivalent
Great Britain
in Can. $
equivalent
142
138
151
120
It will be noted that, in relation to pre-war, the
Canadian index of wholesale prices is 6 per cent lower
than that of the United States and the index of the cost
of living is 13 per cent lower. The comparison with
Great Britain shows a wide difference on wholesale
prices and only a small difference on the cost of living.
The latter 'comparison, however, greatly understates the
true difference because of the small coverage of the
British cost of living index and of the very large subsidies paid to keep down index items in the United
Kingdom.
The Broad Problem.—The existence of relatively
higher prices abroad is already exercising strong upward
pressure on the Canadian price level and in some respects
that pressure is likely to increase. If export controls
1 Quotation from Report of Wartime Prices and Trade Board,
January 1-December 31, 1944.
12
were suddenly removed, and if imports were generally
permitted to come into Canada at higher-than-ceiling
prices, the pressure of higher external prices would
probably wreck the existing Canadian price ^ ceiling.
Nevertheless, While recognizing that an immediate adjustment of Canadian prices would have most undesirable results and should be avoided, it must also be
recognized that it will eventually be necessary to permit
an adjustment of the Canadian price level to the realities of costs and prices aibroad in order to permit a
removal of controls and greater freedom of trade.
The Canadian position would be particularly difficult
if external prices should rise sharply during the transition period. The existing differential is concentrated in
the sphere of primary production and, at any event, is
not large enough to prove unmanageable. But a 10 per
cent or 15 per cent spread as between domestic and
external price levels is one thing and a 25 per cent or 30
per cent spread would be quite another. The following
comments are made on the assumption that external
prices will not get seriously out of hand, i.e. that such
a wide differential between domestic and external price
levels will not develop. They also assume that the
exchange rate will remain at its present relationship
with the U.S. dollar and sterling.
General Policy.—In the interests of maintaining an
effective system of price control for the time being and
of facilitating reconversion and re-employment, a
planned and gradual adjustment to external costs and
prices is clearly desirable. Such a policy is not only
necessary to the maintenance of price -control but it also
places Canada in a position to utilize more fully the
benefits which its relatively lower price structure may
offer dn the development of export trade. Even more
important, the fact that the price level is relatively low
in relation to other countries can serve to minimize the
depressive effects on the domestic economy of declining
prices in other countries if and when such a tendency
were to develop.
These contingencies are much more than theoretical
possibilities. They are immediately related to the needs
and problems of the transition period. There is no
doubt that Canada is faced with the necessity of developing larger export markets for civilian goods. Keeping
costs and prices down will help. Secondly, there is the
possibility that external prices will ultimately decline,
perhaps following a short period of rising prices in the
early stages of the transition. The readjustment of
economic activity from wartime to peacetime conditions
has usually been followed, sooner or later, by a decline
in prices. It is true that the techniques for preventing
such a decline have been greatly developed in recent
years and that the will to use them is greater than ever
before. It is also true that prices and costs have been
less inflated in this war than in any former war. But it
would be dangerous to assume that the external price
level will not decline to some extent. If that should
happen Canada could ease the impact of any such
deflation to the extent that she found herself with a
relatively lower price level.
For all these reasons any initial and upward readjustment of Canadian prices to external prices should
be allowed to take place only gradually and should be
consciously planned. To make such a gradual and con-
trolled adjustment involves the continued use of physical
controls over exports; it inevitably produces difficult
pricing problems with regard to both exports and imports;
and it calls for a high degree of judgment and skill. It
is, of course, impossible to lay down a blueprint for
such a readjustment in advance; decisions will have to
be made in the light of circumstances as they develop.
The administrative problems involved in pursuing such
a policy are discussed briefly under the following three
sub-headings.
Export Controls.—The existence of higher prices
abroad (particularly in the United States) presents a
serious and continuing threat to the maintenance of
adequate domestic supplies of a variety of commodities.
The U.S. market is so large that it could easily drain
away the total supply of many Canadian products, when
a significant price differential exists, to the detriment of
the civilian economy and, possibly, of other export markets which offered greater, prospects of permanence. For
this reason, some of the existing controls over the physical
movement of exports will have to be continued or newly
applied, as the occasion demands. Failure to do this
would not only result in depleting domestic supplies but
would make price control quite impracticable for the
commodities concerned. The Prices Board has cooperated with the Department of Trade and Commerce
in removing or relaxing certain export permit restrictions
where these have become unnecessary, and the procedure
with regard to existing controls has been simplified and
improved. It is clear, however, that the Board will have
to continue to make recommendations to the Department
of Trade and Commerce as to the coverage of export
controls so long as the requirements of the civilian population are seriously threatened by the attraction of
export prices as compared with controlled domestic prices.
Expert Price Problems.—The fact that some external
prices are higher than domestic ceiling prices raises some
difficult problems of price control. The price ceiling
regulations exempt from the provisions of the ceiling
all sales made for export by the seller or his agent. This
means that the direct or final exporter can sometimes
obtain a higher price than the domestic ceiling. In the
case of the more or less standardized products of the
primary industries, this situation has created strong demands for a sharing of the benefits of higher export
prices among all the producers of the commodity concerned, including those individual producers whose output is sold entirely in Canada. As a result, pooling arrangements and other devices, usually combined with
control of exports, have frequently been adopted to
eliminate the difficulties inherent in a two-price structure
and to share the benefits of higher export prices among
all producers of the product in question. Technically,
such arrangements could be continued in the transition
period and present techniques may suffice to meet this
kind of situation, though strong pressure will undoubtedly
develop to permit the export price to determine the price
for the total Canadian output in cases where this has
been the traditional state of affairs. Ultimately, the
revival of normal international trade, the resurgence of
competition, and gradual price adjustments' will reduce
or remove such discrepancies between domestic and
external prices.
13
Import Price Problems.—The difference between
Canadian and external price levels- also produces difficult
problems in regard to imports. The strict maintenance
of existing price ceilings would increasingly have the
effect of preventing the importation of a number of imported items that would be purchased if the Canadian
importer were allowed to sell in Canada at higher prices.
Imported goods are subject to basic-period ceilings in
the same way as domestic goods. Since many prices in
the United States and the United Kingdom have risen
more than Canadian prices it may be difficult and even
impracticable for the importer to pay such higher prices
and still sell the goods under the domestic ceiling. Up
to the present, essential consumer goods have generally
been eligible for subsidy in such cases, so that essential
supplies have not been excluded by the operation of the
price ceiling. At the same time, the supply of goods
ineligible for subsidy has not been large because of
scarcity conditions in the supplying countries with the
result that comparatively few imports have in fact been
excluded by the operation of the price ceiling. Now,
however, that the war in Europe is concluded and our
former suppliers are resuming and expanding production
of peacetime goods1 and are anxious to re-establish their
products in the Canadian market, the pricing problem
may become more serious.
The Government is naturally concerned to avoid the
restriction of such imports. An increase in imports will
help to reduce the shortage of civilian supplies. Moreover, the Government had no intention of having price
control act as a factor restricting and excluding imports,
particularly in view of the two-way character of external
trade and the urgent need of sustaining export business.
This consideration is of special importance in the case
of British imports, taking into account the deficiency in
the sterling balance of payments with Canada and the
fact that British costs of production appear to have
undergone a considerable increase during the war. At
the same time, the Government cannot simply exempt
imports from the price ceiling since that would gravely
weaken, if not destroy, effective control of prices in
Canada.
There is no simple method of resolving this dilemma.
The increasing use of import subsidies can be ruled out;
to pay subsidies to permit the importation of nonessentials- would conflict with the policy of minimizing
and gradually reducing subsidies, and would give cause
for complaints of unfair competition from the domestic
producers of similar products. It would be more reasonable to raise import price ceilings, where they were
genuinely restricting or excluding imports, than to pay
subsidies, not only because of the clear objections to
adding to the subsidy bill but also because domestic
producers would not be placed at an unfair competitive
disadvantage. This latter course, however, might represent a significant breach in the price ceiling even if it
were carefully administered and it would obviously add
to the already heavy burden of administration. Though
it would not result in much increase in the basic cost of
living—since the prices affected would be largely for
non-essentials—it would undoubtedly add to the demands
of domestic producers of similar products for relief from
domestic ceilings and would1 create a precedent which
might be difficult to resist.
At the present moment the available supply of imported goods affected by price increases is not significant.
It is possible that as conditions abroad become more
normal and the supply of goods available for Canada
increases, the price disparities which now exist may
lessen. The problem, however, is one which is receiving
continuous study by the Government.
THE PROBLEM OF SUBSIDIES
Subsidies have been used to a substantial degree to
prevent prices, and particularly the cost of living, from
rising. At the present time, they are running in the
neighbourhood of $200 millions per annum including
those paid by the Department of Agriculture and the
Wheat Board, as well as those paid by the Commodity
Prices Stabilization Corporation. This is a substantial
figure, equivalent to more than two-fifths of the Dominion's average pre-war revenues. Assuming that subsidies are the alternative to corresponding price increases, they directly represent the equivalent-of nearly
6 points on the cost of living index. The use of subsidies explains in part why the wartime increase in the
cost of living index has been considerably less than that
in the wholesale price level. There is no doubt, however, that their payment has avoided a much greater
increase in the cost of living since, by their use, cumulative advances in prices and costs have been prevented
both in the sense that they have been largely paid at
the earlier stages of the productive process, and in the
broader sense that they have been the emergency weapon
which prevented the spiral of higher prices, higher wages,
higher costs, higher prices and so on from gaining momentum. Furthermore, by their contribution in checking an inflationary spiral of costs and prices, they have
helped to reduce the money costs of financing the war
by much more than the expenditures involved in their
payment.
The Nature of the Problem.—While subsidies have
been a useful and, indeed, indispensable means of preventing inflation, their use on a large scale creates serious problems, both from a short-run and from a longerrange point of view. In the first place, they encourage
the false impression that inflation can be prevented in
a-painless fashion: that particular groups can get larger
incomes without prejudicing the stabilization program
and without affecting the position of the rest of the
community. The facts are, of course, that subsidies
add to purchasing power and thus increase pressure on
the price ceiling; that, if not carefully limited in application and amount, they would set a damaging precedent
which would multiply demands for assistance; and that
since the total supply of civilian goods is limited by
shortages of materials, facilities and manpower, they
only add to one group's buying power at the expense of
other groups. In the second place, they create artificial
price and income relationships which it may not be
feasible or desirable to maintain indefinitely. By holding prices to the consumer down and by keeping "income
to the producer up, the effect of subsidies may be to give
both groups an unreasonable idea of what to expect
in future. While the subsidy technique may have some
longer-range utility, its use on anything like the present
scale involves major interference with the competitive
price system and government regulation of a variety of
international transactions. In the third place, subsidies
like tariffs create strong vested interests. They are
14
therefore difficult to decrease or remove, and the longer
they are maintained the greater the difficulty. Finally,
their existence obviously complicates the problem of
price decontrol.
Proposed General Policy.—It is for such reasons
that subsidies should be held down and reduced just as
promptly as is feasible now that the transition period
has begun. While it is quite easy to state this policy
in such general terms, its application is difficult and
calls for careful timing. On the one hand, a sudden
removal of subsidies in the present circumstances would
undoubtedly result in a substantial increase in living
costs and in combination with the various other pressures on the price ceiling might make it impracticable
to maintain a workable system of price control at all.
On the other, undue caution in removing subsidies would
delay decontrol and might result in very strong pressures to continue many subsidies indefinitely.
If subsidies were taken off too soon, their removal
would encourage or precipitate inflation, but if taken
off too late the result might be to aggravate deflation.
To take the subsidies off when the general demand for
goods is strong would mean that most of the formerly
subsidized commodities would rise substantially in price,
which in turn would raise costs, with further effects on
prices. But to take them, off when demand is contracting would mean that the recipients would have little
chance of recouping this loss in income by raising their
prices. Therefore, the time to reduce and remove subsidies is when the inflationary pressures are beginning
to ease. It would not matter greatly if the removal of
subsidies caused some price increases provided that
prices generally were not pushing strongly upward and
provided, of course, that such increases were limited by
the fixing of appropriate new price ceilings. Again, it
is quite apparent that the removal of subsidies will be
a question of timing in which good judgment must play
a major role. The choice of the particular time for
the removal of the particular subsidy depends upon a
variety of considerations and must largely be left to the
appropriate administrative agency. The probable conditions and problems vary with particular kinds of subsidies, and are briefly discussed in the following notes.
Import Subsidies.—Such subsidies, including trading
losses on bulk purchases of imported commodities, have
been running at about $60 millions per annum. They
are paid mostly on materials, of which cotton and
petroleum involve the largest payments, but which include a variety of other industrial raw material1?, foodstuffs and fuels. The need for them arises from warinflated shipping costs, from having to turn to more
expensive sources of supply because of shipping shortages and enemy conquest of territory, and from rising
prices in the countries of origin. These higher costs are
at least in part temporary. Shipping costs have already
declined substantially as war-risk rates have been reduced and removed, and the probable surplus of shipping
following the defeat of Japan may have a strong depressing influence on rates. The opening up of sources
of supply which have been or still are occupied by the
enemy may be a slower process but as soon as shipping
becomes more freely available a number of less expensive
sources of supply for a number of materials will become
accessible. The extent to which raw material prices
may be expected to fall is a more difficult question on
which to hazard a guess. In the case of some com-
modities relief and reconstruction demands will be large,
which will help to maintain prices. Nevertheless, as
more shipping becomes available and more distant supplies enter the market, competition for markets will
increase and some raw material prices may be expected
to fall.
Import subsidies and bulk purchasing losses are
therefore declining and may be expected to decline
further. It cannot be anticipated, however, that they
will all automatically disappear. Some will tend to
stick and, indeed, the more successful Canada is^ in
keeping prices down the larger will be the residual import subsidy problem. With this' in mind, the Government has advised the Prices Board to attempt to eliminate import subsidies just as promptly as possible when
the pressures on the price ceiling begin to ease, in some
cases at the cost of upward price adjustments. It will
be readily apparent, however, that some subsidies must
be maintained in the interest of price control for some
time.
Agricultural Subsidies.—These subsidies, including
the Wheat Board's losses in reselling wheat for domestic
consumption, have been running at an annual rate of
roughly $100 millions. They include large subsidies on
milk, butterfat, feed grain transportation, hogs, and
the rebate on wheat for domestic use. They are mainly
under the jurisdiction of the Department of Agriculture
and the Wheat Board. The Prices Board's interest in
them lies principally in their effects and potential
effects on prices and living costs. Since they apply to
some of the most important foods in the family budget,
increases in the price of which would have a marked
inflationary effect, changes in such subsidies will require
careful consideration.
Consumer Subsidies.—These are the special subsidies paid to reduce the cost of living, instituted in
December, 1942. At the present time their annual cost
is running at something over $20 millions. Milk is the
principal item, costing about $20 millions per annum
and trading losses of something less than $2 millions are
involved for coffee and tea. The Prices Board has
already removed the orange subsidy, which was part of
the original scheme, on the grounds that United States
prices were under control and that sufficient leeway
existed in the cost of living to permit the small increase
involved.
The milk subsidy is difficult to administer, covering
as" it does payments to many thousands of operators,
and its removal would have no secondary effects on
production costs provided that other factors were not
increasing the cost of living. On the other hand, the
removal of the subsidy would have an unfortunate effect
on the cost of living, unless other prices were beginning
to decline.
Other Domestic Subsidies.—These are of many kinds,
though the majority of them are traceable to higher
costs of primary materials, e.g., those on canned fruit
and vegetables, leather, footwear, lumber, woodenware,
wood fuel, and coal. They cost about $20 millions per
annum. Each one is a separate problem and no one of
them is so large as to raise insuperable difficulties in its
removal. It is hoped that it will be feasible to remove
most of these subsidies fairly early in the transition
period—as soon as a little slack occurs in the cost of
living and the particular circumstances of each subsidy
15
permit. Indeed, some such subsidies have been removed
already and others are receiving special study with a
view to their early elimination.
T H E FORM OF PRICE DECONTROL
The most important aspect of price decontrol is the
task of reaching a position in which ceiling prices are
fairly well in line with "open market" prices without
permitting any serious inflation in prices and costs.
This aspect of the problem has already been discussed
in considerable detail in the foregoing pages. It remains
to survey briefly the manner in which the price ceiling
might be removed.
The Over-all Ceiling versus Selective Control.—At
the outset, it should be emphasized that the Government
believes that the over-all ceiling method of control
should not be abandoned for the time being. It could
be suggested, for example, that price control might be
confined to a narrower field now that the war in Europe
is over, concentrating on the items which bulk large in
the current cost of living. While the Prices Board has
always given special attention to such important items,
the Government does not believe that the time is appropriate for any major departure from the over-all ceiling.
To maintain a firm system of control over industries
designated as producing the essentials of life and at
the same time to allow other industries freedom to
bargain for higher prices wTould involve serious discrimination between one industry and another. All
business benefits from price control and it is reasonable
that business generally should accept the limitations on
freedom of bargaining which price control necessitates.
Moreover, because of the discrimination involved in
such a change, the administration of price control would
become extraordinarily difficult. Indeed, it may be
questioned whether it would be possible to pursue a firm
control of some prices if control were to be taken off
many other prices, at least so long as widespread
opportunities to obtain higher prices existed. Finally
and of greatest importance, the removal of price control
on non-essential goods and services would open the
door to a large number of price increases based on
temporary conditions of shortage, which would limit
future domestic and export market opportunities and,
because of the rigidity of the prices of many durable
goods, aggravate the problem of subsequent readjustment.
Possibilities of More Flexibility.—Without changing
the general character of price control it may still be
feasible gradually to introduce more flexibility into
the price structure by relying more on the retail or
"final purchaser*' ceiling and less upon formal ceilings
at the manufacturing, primary industry, and importing
levels. The retail or final purchaser ceiling has always
been the ultimate and most important line of defence
against inflation and a variety of adjustments and
"squeezes" have been permitted in the earlier stages
of the production process. While it would be inadvisable
to permit general freedom of bargaining below the
retail price level at the present time, there are some
cases where this policy might be followed without undue
risk and may indeed be the only feasible course from an
administrative point of view.
The Difficulty of Piecemeal Decontrol—The decontrol of prices will involve some risks. This is
particularly true of retail or "final purchaser'' ceilings
since these represent the ultimate line of defence. It is
not easy to judge when price control over a single commodity can be safely removed—the appearance of some
unforeseen obstacle to the expansion of production or
some unexpected increase in demand, possibly resulting
from a shortage of another commodity used for similar
purposes—might result in a substantial price increase.
Moreover, the removal of price control over a particular
article is likely to lead to prompt demands for freedom
of bargaining on the part of producers of similar or
competitive articles, which would obviously become very
strong if the price of the released article rose above
its former ceiling while manufacturers of competitive
products were still held to their ceilings. Even if
there were no significant price increase for the released
article, the freedom to rearrange the price structure
concerned, untrammelled by basic period prices, would
be regarded by many manufacturers still subject to price
control as a very real advantage. There is the further
difficulty that ceilings once removed would be extremely
difficult to reimpose both from an administrative and
public relations standpoint.
For these reasons, the Government believes that it
should move carefully in eliminating price ceilings.
Where price increases are clearly necessary, price adjustments will be permitted but in most cases ceilings should
be raised and not removed. If ceilings for particular
commodities were continued longer than ultimately
proved necessary, no harm would result since if the
ceiling were not needed it would mean that prices
were "afloat" and not significantly restricted by it.
When ceilings are removed, it will frequently be desirable to take them off for whole groups of commodities
at once: indeed, a theoretical case can be made for not
removing any of the important ceilings until the whole
structure can be eliminated. Though that is an extreme
view, it would clearly be more feasible to judge whether,
for example, the whole textile position has reached a
point where ceilings are no longer needed than it would
be to decide upon the appropriate times for removing
ceilings item by item. Such a procedure would also
greatly reduce charges of discrimination. Furthermore, it
would provide for more flexibility because it would not
be necessary to wait until the danger of price increases
was overcome for every last item. When, for example,
it is reasonably clear that textile prices on the average
are unlikely to increase over the ceiling levels, then
freedom of bargaining for the whole group could be
restored even though in a few instances price increases
were to be expected. On the other hand, there may be
instances where for administrative reasons, it will be
necessary to remove a particular commodity or service
from ceiling control before other related items can be
released. In this sphere, as elsewhere, the Prices Board
will have to feel its way experimenting with various
techniques and guided by the broad objectives of preventing inflation and facilitating reconversion.
3. SUPPLY AND DISTRIBUTION
T H E NATURE AND DEVELOPMENT OF SUPPLY AND
DISTRIBUTION CONTROLS
As an integral part of the task of preventing inflation and economic dislocation, the Government has
the additional responsibility of ensuring that the essential requirements of the civilian population are met.
To make sure that enough of the essential goods needed
16
by the public are actually produced or imported, and
that goods in short supply are equitably distributed,
the Prices Board has had to develop a variety of
supply and distribution controls. Such measures, which
were necessary in themselves, are closely related to
control of prices since without sufficient production to
meet the essential needs of the population and an
appropriate distribution of materials and finished goods
in short supply, price control would be out of the
question.
Types of Control.—Through the agency of the
Prices Board, the Government administers the following
general types of control:
(a) Some imported and domestic materials in short
supply are allocated by the Board in such a way
as to ensure that producers of the more necessary
civilian goods have priority. This sometimes
takes the form of a developed allocation or priorities scheme and in some instances is carried
out informally by the Administration concerned.
(b) Specific arrangements are made for the bulkpurchasing of needed imports. Arrangements are
also made with various international agencies for
the Canadian share of world supplies of scarce
foods and materials.
(c) The production of adequate minimum supplies
of certain important civilian items (notably
textiles and clothing) is assisted by a system of
production directives.
(d) When essential production of civilian goods is
impaired or threatened by shortage of labour, the
Prices Board acts as a claimant agency for
special assistance before National Selective
Service and has also advised manufacturers as
to methods of improving the use of existing
labour and of reducing labour turnover.
(e) In the sphere of distribution, both at the trade
level and at the consumer level, Government
regulations are designed to ensure that available
supplies are equitably and effectively distributed.
The policy of equitable distribution, sometimes
supported by directives, and the various forms of
consumer rationing are the chief instruments
used.
(/) The production of essential civilian goods and
of munitions has also been supported by a
number of purely restrictive measures which
limit or prohibit certain less essential activities
and restrict the establishment and extension of
businesses. This kind of control has included
regulations restricting or prohibiting the production of specified finished goods, particularly in
the metals field, standardizing or simplifying the
types of production, and eliminating "frills" and
unnecessary forms of services.
Extent of Government Responsibility.—Apart from
the last-named type of control, the Government's activities have been of a positive rather than a negative
character. It is the responsibility of the Prices Board
to take all feasible steps to assure a sufficient supply of
goods and services to meet the essential needs of the
civilian population. It is not the Prices Board's responsibility to say what shall not be produced except
when it is clear that the production of non-essentials is
preventing the output of a sufficient supply of essentials.
Thus, the bulk of the Board's work in the sphere of
supply takes the form of actions designed to facilitate
needed production], through the allocation of materials,
through procurement of materials from abroad, through
application to National Selective Service for labour
assistance, and sometimes through specific direction
of production.
The Prices Board's responsibilities for civilian supply have never been defined in detail, and it is probably
impossible to do so. But because there is no precise
definition of responsibility, there is often a tendency
to assume that the Government is responsible for civilian
supply in all its -manifold aspects and particulars. This
is not the case. The Government's responsibility is
limited to assuring sufficient supplies to provide for the
essential needs of the civilian population. It is true that
these essential needs cannot be expressed in exact
amounts, because there are a variety of ways in which
they can be met—e.g. people can do with less pork if
there is sufficient beef and they can get along with
fewer rayon stockings if cotton stockings are available—
and because the amount of production required depends
in part on the way in which it is distributed—e.g. if a
strict rationing scheme is in force less production might
be required than if the product concerned were freely
distributed. It is also true that essential needs vary
to some degree with the particular circumstances of the
times; for example, the production- of materials for
housing could scarcely be regarded as a prime essential
when manpower was so desperately needed for the
munitions factories and for the armed services whereas
at present such production has a very high degree of
essentiality. But, though the border line of the Government's responsibility cannot be clearly defined, it does
not extend to seeing that people get exactly what they
want or all they want. The Prices Board has no
mandate to plan all civilian production or to devise
schemes for apportioning supplies which are not genuinely needed.
Recent Changes in Controls.—Since the latter part
of 1944, the Prices Board has progressively relaxed or
rescinded many of its supply controls, particularly those
of an essentially negative character which had largely
been imposed in the almost desperate circumstances of
1942 and had frequently become redundant with the
development of more direct controls over the use of
materials and labour. A number of controls were removed in the late Summer and Fall of 1944 and many
more eliminated just after V-E day.
As early as last Summer, the Prices Board announced,
with Government sanction, that it would remove and
relax restrictive measures just as promptly as feasible
with a view to assisting producers to plan for reconversion and permitting them to resume and to expand
civilian production as soon as materials and labour were
available. Thus a variety of orders restricting and prohibiting production of particular articles and kinds of
articles has already been removed, especially in the
sphere of metal goods where the most severe restrictions
had prevailed and where the reduction in war contracts
had the most significant effect in- releasing metals and
plant facilities. The removal of such restrictions, of
course, did not assure increased civilian production—that
depended upon the availability of labour and materials
and upon the controls exercised over them.
17
In addition, the controls over commencement and
expansion of business enterprises were greatly relaxed in
1944. Under present arrangements applicants are given
permits to commence business except in those cases
where the proposed activity is still prohibited by other
regulations or where necessary materials are extremely
short and a strict quota system is in force. Again, this
does not mean that new entrants will avoid supply difficulties. Indeed, where shortages exist the equitable distribution policy (based generally on the pattern of
distribution in 1941) applies, which means that new
enterprises are not entitled to a share of many scarce
items.
The more important of the supply and .distribution
controls still in operation are in such form that they are
largely self-liquidating; that is, since they are concerned
with the allocation or distribution of raw materials and
finished goods in scarce supply, they will cease to be
necessary or significant just as soon as supplies become
adequate to meet demands. Allocation and distribution
regulations and direction of production have no purpose
when shortages are overcome and, similarly, at the consumer level rationing is unnecessary when the supply
situation improves to the point where consumer demands
can be met reasonably well.
SUPPLY AND DISTRIBUTION CONTROLS DURING
THE TRANSITION
While supply controls are being steadily reduced,
and the purely negative controls rapidly eliminated,
some controls will have to be continued until the end
of the Pacific war, and a limited number may have to
be maintained even longer. Since the duration of shortages cannot be accurately determined, it is not possible
to specify in detail which commodities or services are
likely to remain under control, though it is worth noting
that there is no present indication of an early solution
to the existing shortages of textiles and foodstuffs.
However, it is feasible to outline the considerations
which should determine whether particular kinds of control are continued or shortly removed.
The allocation of materials and component parts.—
Though the decline of war production will progressively
release large quantities of certain materials (especially
metals) and will more gradually make available component parts for civilian production, some shortages
remain acute and some may even continue after the
defeat of Japan. The shortage of certain imported
materials, such as fats and oils, fibres, tin and natural
rubber will continue for a considerable time. The needs
of liberated countries will prolong the shortages of a
variety of commodities, such as sugar, meat and textile
fabrics.
Since Canada is dependent upon imports for so many
important raw materials, the availability of many supplies will be governed by considerations outside of Canadian control. Moreover, as a condition of obtaining
her fair share of such imports and as a contribution to
international reconstruction, Canada may see fit to limit
her domestic use of certain widely needed Canadian
commodities for the time being. International arrangements for the disposition of basic materials may continue to be made for a time by the Combined Boards
m Washington. So long as such supplies are seriously
inadequate to meet domestic demands, the need to apportion them among the various Canadian claimants will
remain; indeed, a system of domestic allocation may be
a condition of an international arrangement to distribute
scarce materials.
Domestic allocation of supplies as between manufacturers has the double objective of ensuring a sufficient
production of essential articles and of providing for an
orderly and, to the extent that it is consistent with the
provision of essential needs, an equitable distribution of
the supplies concerned. So long as supplies of particular
materials are not sufficient to permit unrestricted procurement and still safeguard the consumer's interest,
allocation and priority arrangements will be needed. As
supplies of particular materials improve such controls
can be readily eliminated, commodity by commodity or
arrangement by arrangement.
Bulk Purchasing,—The bulk purchasing activities of
the Commodity Prices Stabilization Corporation in the
international field have been made necessary by the
special circumstances of a world at war. In a considerable number of cases (e.g. tea, hides, jute, oil seeds and
fats) the Corporation has purchased the Canadian
requirements of goods subject to international purchase
or allocation agreements. In these cases bulk purchasing, as distinct from the operations of private purchasers,
is necessary to enable the terms of an agreement to be
carried out. (Such agreements, in turn, are usually necessary to make the most equitable use of available world
supplies.) Alternatively, bulk purchasing procedures
have often been undertaken simply as a condition of
obtaining an allocation from the government of the
country in possession of supplies. Or they may have
been introduced to secure advantages from large-scale
buying, or where an emergency purchase is possible only'
by a government agency. Insofar as these considerations
continue to apply, the Prices Board's responsibility for
ensuring minimum supplies of essential materials and
for controlling prices will require the continuance of
bulk purchasing. However, as supplies abroad become
sufficiently plentiful to be removed from international
or external control, the responsibility for imports can be
turned back to the importing trades; indeed, this has
already been done in some cases. In the same way bulk
purchases undertaken to facilitate procurement of
shipping space can be relinquished as the shipping
situation improves. While the possible continuance of
bulk purchasing would not appear to raise any constitutional problem in itself, it should be noted that the bulk
purchasing activities are frequently and necessarily
supported by measures to control the subsequent allocation of the materials in question.
Import and Export Controls.—The system of import
and export controls operated by other agencies of government in wartime has been extended or amended from
time to time on the advice of the Prices Board. Since
these controls are an important feature of the Board's
arrangements for the protection of domestic supplies,
some reference to them is necessary. Export controls,
which usually involve the prohibition of exports except
under permit, are sometimes necessary to ensure that
domestic supplies are not depleted by an excessive export
drain. As pointed out earlier, the problem is of particular importance because prices have been maintained at
a level which in some cases is low in comparison with
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other countries and because of Canada's proximity to
the enormous consuming market of the United States.
From a supply as well as from a pricing point of view,
the removal of export controls will have to be undertaken with care, i.e. with due regard to the probable
effect on domestic supplies.
Import controls are another matter. The general
interest of the Government in wartime has been to keep
import controls at a minimum. In those cases where
commodities have been placed under import control on
the recommendation of the Prices Board, such action
has been necessary to ensure that allocations made by
external agencies have been used effectively (e.g. import
controls on cotton and woollen materials), or as necessary to the proper supervision of a system of domestic
allocations. Such special controls over imports can,
therefore, be removed as soon as these particular shortages are eased.
End-Product Restrictions.—As mentioned earlier, the
Prices Board has already gone a long way towards the
elimination of its restrictions on the production of particular articles and kinds of articles, often known as
end-product restrictions. A few measures of this type
may continue to be necessary. If, for example, the
supply of clothing continues to fall far short of demand
it might be necessary to continue to prohibit certain
avoidable fabric-wasting practices, and it is even conceivable that the present limited regulations of this
type might have to be extended. A few other endproduct controls may be continued until the parallel
controls in the United States (from which country
Canada has to import essential components) have been
abandoned. By and large, however, it is to be expected
that this type of restriction will occupy a minor and
steadily diminishing place in the Board's activities.
Production Directives.—A more positive and effective method of ensuring essential supplies of particular
articles is the production directive. These directives
require each manufacturer to produce a specified amount
of the article concerned, based on past performance and
existing capacity, and designed in the aggregate to
sustain or increase the total current scale of production.
For its part, the Prices Board takes steps to assure the
required amount of materials and when necessary
applies to National Selective Service for assistance in
obtaining and keeping labour. At the present time,
production directives apply to many kinds of footwear
and to many articles of clothing and indeed cover the
, majority of necessary apparel. Though they represent a
large administrative task, they have the advantage of
concentrating directly on what is needed. By channeling
materials into essential production, they frequently have
the indirect effect of reducing non-essential output without the use of specific and inhibiting restrictions.
Here again, increasing supplies of materials and
labour will gradually remove the need of such directives,
though at the present time the world-wide shortage of
apparel shows no sign of early correction.
Distribution Controls.—Controls over the distribution of goods from the point of manufacture or production down through the distributive trades constitute an
important segment of the Prices Board's activities. It is
not enough to see that the domestic production or imports of a commodity are adequate to meet essential
requirements of the civilian population. The next step
is to see that wholesalers and retailers and ultimately
consumers in all parts of Canada can buy their fair
share of what is available. This means that the distribution of goods throughout the various regions and
districts of Canada, and through the various types of
retail outlets, must be fair and equitable. In extreme
cases it means that formal consumer rationing is necessary. Without such equitable distribution relatively
small overall shortages might result in extreme hardship and inequity to some distributors and consumers,
besides creating pressure on the price ceiling.
Apart from articles which are rationed, goods in short
supply are required to be distributed by manufacturers
and wholesalers among their various trade customers in
accordance with the pattern of distribution in-1941, as
laid down in the Prices Board's statement on Equitable
Distribution Policy. Adjustments to the basic formula
are made by the Board in special cases, and interpretations of the policy in specific cases are necessary from
time to time. This form of control has proven itself
elastic enough to meet most situations and has involved
a relatively small amount of enforcement and supervision. In the nature of things this type of control can
and will automatically disappear as supplies improve.
Experience has also shown that when prices are
controlled there will be occasions when, despite the allowances that are made for regional differentials to meet the
costs of additional transport, the price incentive to move
goods in short supply from surplus regions to deficiency
areas is not always adequate. Consequently, the Prices
Board sometimes finds it necessary to direct and supervise
the physical movement of certain commodities (e.g.
butter). Such direction or supervision is usually undertaken in an informal manner, informality being more
appropriate to the variety of situations which arise from
time to time. However, the effectiveness of such informal
directives is undoubtedly increased because of the power
which the Board has to compel enforcement if this should
prove necessary.
Consumer Rationing.—The necessity for distributing
certain essential consumer goods which are in short
supply by one form of rationing or another is widely
appreciated. On the other hand, the inconvenience to the
consumer and to the distributive trades, the expense to
the Treasury, and the administrative burden are such
that the Government has always avoided consumer
rationing unless the need was clear and less elaborate
controls inadequate.
Consumer rationing necessitates
control over the flow of goods between manufacturers
or producers and the distributive trades, in addition
to control at the consumer level. Thus producers and
distributors are required to account for the disposition
of rationed goods by the surrender of the appropriate
documents or coupons and by periodic reporting upon
their dealings. Quota systems are frequently necessary
to control the amount which may be sold to particular
classes of customers (sugar rationing, for example,
involves a whole system of distribution quotas for industrial users, restaurants, etc.).
At the time of writing the Prices Board operates
some form of consumer rationing for butter, evaporated
milk, sugar, preserves, farm machinery and a few other
products, and meat rationing is about to be re-introduced.
While some of these items may have disappeared from
the ration list before the end of hostilities, others may
have to be continued beyond the end of the Pacific war
as, for example, some forms of food rationing.
19
For some commodities (e.g. sugar) the need for continued rationing will be dependent upon the external
supply situation. For other food products, such as meat,
the amount available in Canada will depend upon the
extent of Canadian shipments to the United Kingdom
and of participation in arrangements to supply relief to
the liberated areas of Europe and Asia.
4. RENTALS AND REAL PROPERTY
RENTAL CONTROLS
Rental controls are an integral part of the Government's price control policy. They are dealt with
separately since they have presented special problems
of control and since the criteria' and methods of decontrol may differ in some respects from those involved
in removing controls over the prices of commodities.
Development of Rental Controls.—Rental controls
were originally introduced in Canada during the Autumn
of 1940 and were, at that time, confined to certain areas
where an influx of war population had resulted in
serious housing congestion. This action, involving the
establishment of a "ceiling" at the levels prevailing on
a specific date, set the pattern for the general system
of rent control which is now in effect. Additional
localities were brought under rental control from time
to time and before the introduction of the general price
ceiling, the control of rentals of residential premises
had been extended to a large number of Canadian
cities and towns.
Among the reasons for controlling rents as early as
1940 were indications of coming rental inflation together
with the fact that rent is generally the largest single
item entering into a family's "cost of living", where
it is considered to represent about 20 per cent of the
total. It was fully recognized by the Government that
rent control would do nothing to increase housing
accommodation but, with a scarcity of both labour and
materials for building, it was unlikely that even substantial increases in rentals could have done much to
add to the wartime supply of houses. In the circumstances of wartime congestion, the supply of housing accommodation and the general level of rents were regarded
as separate problems and it was left for other government agencies to assist in the provision of temporary
wartime housing accommodation where such action was
deemed advisable.
Rental control was associated from the beginning
with measures to protect law-abiding tenants from
eviction except where the landlord needed the premises
for his own occupancy or for certain other designated
purposes. The inclusion of clauses to protect the tenant
was based upon the general experience of countries
which had restricted rentals during the war of 1914-18.
It had for its main objects (1) the prevention of evasion
or breach of the rental regulations themselves and (2)
the prevention, as far as possible, of disturbance and
expense caused by involuntary moving.
If rentals were to be fixed, it was almost inevitable
that they should be fixed as of a fairly recent basic
date and not by means of a formula designed to yield
some given rate of net return to landlords. Any such
formula would have involved administrative difficulties
and tasks which would have been quite out of the
question in time of war. On the other hand, the rental
existing on a basic date not too far in the past had the
administrative merit of being a definite fact easily
ascertained and providing a comparatively simple
criterion for enforcement. It had, in addition, the
advantage of being an amount upon which landlord
and tenant had agreed at a date before wartime congestion became a serious factor. For these reasons, notwithstanding the recognition of occasional "hard cases", the
maximum rentals established in many countries during
both the first and the second Great Wars have been
based in general upon those actually prevailing at some
selected date, and Canada followed the same method.
Adjustments were permitted in certain types of cases
recognized as exceptional.
With the introduction of a general price ceiling,
the controls over rents were extended to all real property
other than farm land, including commercial as well as
residential premises. Under this extended rental control,
it was provided that the maximum rental which might
be charged for any commercial or housing accommodation was the rental in effect on October 11, 1941,
with the exception that rental controls already in effect
retained their previous basic dates.
Special circumstances which justified the landlord
in applying for permission to increase the rental charged
were itemized and fell mainly under four headings: (1)
substantial increases in taxes on the property; (2) added
service not previously given by the landlord; (3)
substantial structural alterations; and (4) lower fixed
rent than generally prevailing because of a concession
of an exceptional nature.
Tenants were given greater security of tenure and
landlords might only give notice to vacate for certain
prescribed reasons. These reasons included non-payment
of rent, conversion of premises to uses other than housing
or major structural alterations, and expected occupation by the landlord or some member of his immediate
family. As a means of lessening unnecessary moving,
promoting the enforcement of rentals regulations, and
discouraging further increase of overcrowding without
undue interference with the rights of existing landlords,
additional security was later given to existing tenants
by measures extending the length of notice which must
be given by any new purchaser seeking possession of a
dwelling purchased for his own occupancy.
The congestion of population which originally led to
upward pressure on housing rentals and thus gave rise
to rental control, continued to develop during the war,
as a result of the expansion of war industries, the
continued movement of military and administrative
personnel into urban centres, the increase in family incomes, and the limited facilities available for residential
construction in time of war.
The Need for Rental Controls during the Transition,
—The termination of hostilities may alter some of the
circumstances leading to upward pressure on rentals.
Cutbacks of munitions contracts will reduce employment
in a number of factories and may lead to some migration of population out of congested centres. The number
of administrative personnel required in the cities may
be somewhat reduced. In addition, the contraction of
war activity will reduce family incomes in a number of
20
centres, reflecting transitional unemployment, reduced
hours of work, and reduced overtime premiums.
But, despite such developments, it is likely that the
shortage of housing will remain one of the most serious
and persistent problems of the transition, outlasting
shortages in most other spheres. The reasons for this
lie partly in the very nature of housing—that the total
supply can be increased only very gradually even when
the rate of new construction is high—and partly in the
particular circumstances of the existing situation. To
start with, the supply of housing was inadequate when
the war began: the level of new building had been very
low during the 'thirties and it was only toward the end
of the decade that recovery in construction began to
gather way. This position has been worsened during
the war by nearly six years' natural increase of population, concentration in urban and military centres, and
scarcity of labour and materials for residential building.
A large backlog of demand for housing undoubtedly
exists and a good deal of it is likely to seek realization
in the near future. For example, the impending return
of several hundred thousand service personnel to civilian
life, accompanied in thousands of cases by wives from
overseas, may present an acute problem. Many new
marriages and an accelerated natural increase are to be
expected in Canada after the war. Many wives now
living in the parental home or in shared accommodation
will rejoin their husbands and will want self-contained
accommodation.
Such increases in demand may be counteracted to
some extent by the return of some war workers from
their present residences to the places from which they
came: but such outward movement from congested
areas is not likely to be rapid or large. Those persons
who have become accustomed to city life may be slow
to consider returning to the farm, where increasing
mechanization and efficiency has continued to reduce
the need for their services. For those who have come
from smaller communities, Government policies designed
to achieve high employment and unemployment insurance will delay movement out of the cities. Moreover,
even smaller towns where war activity has been small
or lacking report congestion. During the war a number
of older farmers have retired to nearby towns, and in
western Canada, many farmers who are still active on
the land have purchased homes in the towns in which
to live during the winter months. Hence it is likely
that, if employment and farm income is reasonably well
maintained, the demand for housing may increase on
balance for at least two or three years, and perhaps
considerably longer.
Moreover, it may take some years before additions
to the supply of housing can fully meet the heavy prospective needs for accommodation. The shortage of
labour for building will no doubt be relieved by the
release of skilled workers from the army and munitions
work, but the process will take time. It will also take
some time to make good the shortage of materials,
some of which, such as lumber, will be subject to
export demand for construction in Great Britain and
elsewhere.
The experience of this and other countries after the
last war gives added point to risk of rental inflation in
the near future. Though rentals in Canada and the
United States increased relatively little during the last
war, they rose sharply after the war and by 1923 were
about 50 per cent higher than in 1918. The rise was
greatest between 1918 and 1921 continuing more gradually thereafter. In the United Kingdom an increase of
40 per cent was authorized in controlled rentals after
July 2, 1921, and when such houses were subsequently
decontrolled it is reported that their rents on the average
showed a further increase of 30 to 50 per cent above the
previously controlled level.
Effects of Rental Control—So far as tenants are concerned, there can be no doubt that wartime rental controls have had the effect of holding rentals at a lower
level than they would have reached in the absence of
regulation. At the same time, law-abiding tenants
receive a large measure of protection against arbitrary
termination of their leases, and in general enjoyed
greater security of tenure than they had possessed under
provincial laws in time of peace. The landlord's right to
recover possession of his property for his own occupancy
is restricted by the requirement that he must give a prescribed notice which was in many instances longer than
that originally stipulated by provincial law or the terms
of his lease. The fact that a number of families, who
would have preferred to be tenants, reluctantly chose to
purchase homes in order to obtain the kind of accommodation they desired, resulted not from rental control but from the insufficiency of the supply of housing
to meet wartime demands, and this condition in turn
resulted mainly from the necessity of giving priority to
other demands for labour and materials.
From the point of view of landlords, rental controls
have of course prevented them from increasing their
incomes to the extent that would otherwise have been
possible, and in some cases has resulted in a "squeeze"
between increased operating expenses (for such things
as fuel and janitor service) and fixed rentals. There
have, however, been important counteracting influences,
notably the absence of vacancies and bad debts and the
reduced frequency and extent of decoration and repairs.
While there are considerable differences among different
properties, sample studies indicated that for landlords
in Canada as in the United States such favourable influences somewhat outweighed the unfavourable ones
with the consequence that net operating results in general have shown some improvement since the period
prior to the imposition of control Furthermore, landlords who preferred other forms of investment have
found a ready market for the sale of their properties
outside of price ceiling restrictions, and the prices realized on such sales appear to have been, on the average,
very substantially higher than could have been obtained
before the war.
There is little reason to believe that new construction has been restricted by rental control. Single
dwellings in Canada are usually constructed with a view
to owner occupancy. Where it has been proposed to
construct new buildings for rental, the rentals have in
general been fixed at such a level as not to discourage
the proposed construction. The major obstacle to construction throughout the European war continued to
be the scarcity of labour and materials, a condition
which higher rentals could have improved but little and
probably only at the expense of more urgent production.
From the point of view of anti-inflation policy as
a whole, rental controls, affecting an item responsible
for approximately one-fifth of the average tenant
family's budget, undoubtedly contributed an important
stabilizing effect and helped to support other parts of
the program.
21
* Criteria of Decontrol.—In planning for the decontrol
of rentals, the following main objectives require consideration:
(a) The first is the necessity of keeping the cost of
living under control so long as the danger of inflation persists. A sharp increase in rentals would
raise the cost of living very considerably. It
would not only be inflationary in itself but it
would also be taken as an example by other
groups in the population who have been subject to
the restrictions of price and wage controls. If
the cost of living is allowed to get out of hand
during the immediate postwar period, much that
the people of Canada have struggled during the
war to maintain would rapidly be lost. Postwar
inflation would impair home and export markets,
increase the cost of government, worsen the position of the recipients of fixed incomes (including
the holders of Victory Bonds), destroy confidence,
and lead in turn to subsequent disastrous deflation. A postwar rental inflation in particular,
though it might lead to an immediate boom in
construction and realty prices, would very
probably be followed soon afterwards (as has
happened before) by a buyers7 strike and by
depression in the building industry.
(b) Another important consideration is the desirability of providing tenants with reasonable
protection from eviction at a time of acute housing
shortage. Such protection, which serves as a device to assist in the enforcement of the rental
ceiling, is also an object of importance in itself.
The danger of eviction in a community where
housing is in short supply is one which no tenant
can contemplate with equanimity, and extensive
evictions in such a community could easily lead
to actual public disorder.
(c) It is most important that neither rental control
nor any governmental policy should be administered in such a way as to restrict building construction especially in view of the large accumulated deficit of housing. Housing construction may, however, be promoted by methods other
than the removal of rental controls, which method
might, as already mentioned, defeat its own objective by promoting a short-lived boom followed
by a buyers' strike and depression. Other methods available include the operations of the
National Housing Act which, by low interest
rates and long amortization periods, has reduced
the cost of building. Improved methods of construction and larger scale production of components, would also help to bring about. further
reduction of costs.
(d) The legitimate interests of landlords should be
given due attention. Since a good half of the
families in this country may continue to live in
rented dwellings, it follows that the rentals obtainable for new housing should be such as to
give a reasonable return on investment, if private
enterprise is to be expected to continue to provide such housing.
{e) As emphasized in the discussion of pricing problems, questions of employment must be a major
consideration in decontrol policy. Employment
in the building trades is of great significance
both because of its potential size and because
construction is generally considered to have a
strong "multiplier effect" upon the national
income.
Possible Courses of Action.—Planning for decontrol
should be carefully tested by the criteria outlined above.
These criteria clearly rule out any sudden and complete removal of rental controls in the near future.
Such a step would in all probability be followed
by drastic increases in rentals as quickly as existing leases might permit. Such increases in rentals
would stimulate residential building and purchases both
by tenants and speculators. It is likely, however, as
already suggested, that there would soon be a reaction.
The demand for building materials and services would
tend to force costs and prices up, a development which
would in turn lead to postponement of further projects
and slackening in the construction industry. At the
same time, rising rentals would cause people to lessen
the amount of space occupied, thus reducing the demand
for housing. The building boom would, therefore, probably be followed in a short time by a new period of
depression and deflation in the construction industry.
It therefore appears that decontrol of rentals should
be undertaken in a gradual manner, and several different
methods have been proposed. One is to set up appeal
tribunals in each locality, which would be authorized to
readjust the authorized rentals for individual properties according to their own judgment. Such a plan would
provide means for rectifying anomalies, but it would
necessitate the erection of a large new administrative
mechanism, involving a substantial amount of labour
and expense. It would entail a multitude of rather arbitrary decisions which might be quite unsuccessful in
winning the approval of either landlords or tenants,
and the Government would be loath to embark upon any
such scheme.
Another method, which is already in effect, is to
provide for more liberal treatment in fixing the rentals
of new properties, while continuing to control rentals
of other accommodation on the present basis. The differential between rentals of pre-war houses and those
recently constructed is justified as compensation to cover
increased costs, and the maintenance of 1941 rentals
for pre-war housing is in conformity with the general
principle of the price ceiling. If continued control of the
cost of living is to be harmonized with encouragement
of new construction, this method of differentiating
between the treatment of old and new properties becomes
a necessary part of transitional policy.
If it should later develop that rental control is inflicting genuine hardship upon landlords (after due allowance for the favourable influences of full occupancy
and prompt collections) or that landlords as a group are
being subjected to much more severe restrictions than
those imposed on the business community as a whole,
it might be necessary to provide for relief before the
complete removal of rental control. Since it is administratively out of the question to provide relief on an individual basis, any such step might have to take the form
of a flat percentage increase in maximum rentals. This
policy was adopted in Great Britain, where, after the
last war, three successive percentage increases were
allowed.
Another method of decontrol which was used in
Great Britain following the last war was to exempt
individual houses from rental control as they fell into
22
vacant possession of the landlord. This meant, of course,
that some houses remained under control for many years,
in fact more than forty per cent of the houses in England
and Wales were still subject to rental control in 1937.
While this method of piecemeal decontrol avoided the
difficulty of announcing that from a certain date all
tenants were liable to have their rents increased substantially, it did involve discrimination on a purely
accidental basis among the many landlords and tenants
involved. (It is reported that in London, England, the
rentals of decontrolled working class houses in 1937 were
nearly 50 per cent higher than those of controlled housing.) Because of its discrimination and slowness, this
method is neither desirable nor feasible.
The danger of rental inflation will pass away earlier
in some localities than in others. It is therefore probable
that rental control should be abolished by localities in
a manner similar to that in which it was originally
imposed in 1940 and early in 1941. As soon as the relationship between demand and supply in a locality reaches
a point where it seems probable that the abolition of
rental control in that locality would not bring about
a condition of "scarcity rentals", there would seem to
be no further justification for rental control in such an
area. This system of decontrol would raise serious difficulties if rentals rose substantially in decontrolled localities, particularly if they were adjacent to other localities
still subject to control. As with reconversion pricing,
the Prices Board will have to experiment and adopt a
practicable approach.
. The decontrol of commercial rentals involves considerations very similar to those affecting housing accommodation. In normal times, commercial rentals are in
a constant process of adjustment. If the rental demanded
for any property is unreasonably high, the tenant is free
to seek other accommodation at the termination of his
lease, new construction is constantly going on, and excessive rental demands are held in check by the possibility
that the premises may become vacant. In time of war,
there has been an abnormal increase in the requirements of commercial accommodation, new construction
has been restricted, and there may be a continued
scarcity for some time.
So long as the supply of commercial accommodation
in a given area has not caught up with the demand,
there are probably many tenants who could be forced to
pay a scarcity rent rather than be dispossessed and
driven out of business. Having committed themselves
to pay a scarcity rent, they would then be under pressure to raise the prices of their own production or to
reduce other costs and to reduce the quality of their
production. There is, therefore, a case for maintaining
controls of commercial rentals and protection of tenure
in any locality so long as it seems likely that decontrol
would lead to rent inflation, new "squeezes" upon business and upward pressure on prices. New building
can be encouraged by devices for reducing building
costs (e.g. the recent removal of taxes on building
materials) and by permitting higher rentals for new
buildings until the time comes in any locality when it
would be possible to remove the control of commercial
rentals altogether. As commercial leases frequently
run for a number of years, the speedy decontrol of
commercial rentals would probably force some businesses to obligate themselves for several years to pay
rentals on a scale which might not long continue to be
justified. The future of commercial building depends
most of all upon the expectations of the business community with regard to future business opportunities,
and is therefore closely tied up with the success of
reconversion, reconstruction and the high employment
policy generally recognized as desirable in this country.
Housing and rent control policies are obviously both
parts of a single problem, and in the treatment of that
problem it is important that both the federal and provincial authorities should work with united purpose.
The Federal Government, with more ample resources,
administers the National Housing Act, under which
funds collected by taxes or loans in any part of Canada
may be utilized to promote building wherever it is
required. The federal authorities bear the chief responsibility for the initiation of co-ordinated policies to
counteract cyclical fluctuations and maintain a high
level of employment—policies which it would not be
feasible to leave to the varying ideas, local jurisdiction, and limited resources of nine separate provincial
governments acting independently and conceivably
under the influence of different views and purposes. On
the other hand, the provinces possess local knowledge,
administrative mechanism, and constitutional power to
regulate matters relating to property and civil rights.
If rental controls are to serve their purpose and
decontrol is to take place in an orderly manner, it is
essential that rental and housing policies be planned
and administered on a co-ordinated basis.
Conclusion.—The present views of the Government
with regard to rental control may be summarized as
follows:
(a) Control of residential and commercial rentals
should be maintained so long as it appears
probable that its abolition would be followed by
undue increases in rentals. At the present
juncture, it is difficult to contemplate the
abandonment of control during the next two
years, and it might be necessary to retain the
system for some time longer; since, assuming the
continuation of a high level of national income
and employment, it will take a considerable time
to overcome the present housing scarcity.
(b) Protection of tenants against eviction should be
maintained, and conceivably even strengthened
both as a necessary part of rental control and as
an end in itself.
(c) So that rental control will not restrict new
construction of housing, the practice of authorizing higher rentals for new housing, while maintaining present ceilings for existing housing,
should be continued.
(d) The position of rental controls should be
frequently re-examined with a vie\£ to decontrol
by areas as rapidly as local conditions permit.
(e) Efforts to promote new housing construction at
moderate cost should be vigorously promoted and
the activities of various government agencies
shouW be co-ordinated. Indeed, without a substantial increase in housing accommodation at a
reasonable cost, the decontrol of rentals will raise
very serious difficulties.
23
REAL PROPEBTY VALUES
The Prices Board has received frequent complaints
with regard to the cost of dwellings and has been asked
on numerous occasions to apply price control to real
property values. Persons in search of a place to live,
and unable to find suitable accommodation for rent,
have frequently found it necessary to purchase a residence and in many cases have regarded the price as
inflated. Since the prices of most goods and services
are under control, it is therefore argued that the
purchaser of housing should receive similar protection.
Problems of Rising Real Property Values.—Though
adequate statistical data are not available, there is no
question that real property values have risen considerably during the war and since the imposition of the
price ceiling. The cost of new building is estimated to
have risen substantially since pre-war and there is little
doubt that the prices of new houses sold by builders
have risen at least as much. Moreover, because of the
shortage of materials and labour, the quality of many
new dwellings has shown some deterioration. The prices
of older houses have also increased, and though some
real estate experts believe that the increase has been
less marked than in the case of new structures, the rise
has been considerable. With regard to other forms of
real estate, the prices of farm land have also increased.
Reports to the Dominion Bureau of Statistics from crop
correspondents across the country indicate that the
average value of occupied farm lands rose from $25.00
per acre in 1939 to $30.00 per acre in 1944—a rise of
20 per cent. The increase has been most marked m
central and eastern Canada (26 per cent in Ontario,
32 per cent in Quebec, 38 per cent in New Brunswick,
and 24 per cent in Nova Scotia). It has been less
marked in the Prairies—between 10 per cent and 15 per
cent—but it commenced later, only becoming evident in
1943, and there is reason to believe that the increase
has gathered momentum since the last report which is
based on mid-1944.
These increases in property values are not based on
any widespread extension of private credit. Indeed, a
large amount of private debt, particularly farm debt,
has been paid off during the last few years and the cash
proportion in purchases of property has probably been
much larger than usual. Moreover, the whole structure
of prices and costs has risen materially since the outbreak of war. Though it has been nearly stable for
three and one-half years, the cost of living is some 18
per cent over pre-war levels. Wholesale prices are
some 35 per cent higher than before the war and the
prices of farm products are nearly 50 per cent higher.
Wage rates are up about 40 per <cent. In view of
these general increases in prices and costs and in view
of the high volume of production and demand, some
increases in real property values are certainly justifiable
and the increases that have occurred to date may not
be out of the way. This is not to say that there has
been no inflation in property values and that the danger
of such an inflation has passed. The fact that there has
been no general expansion of private credit provides no
assurance that property values will not rise to levels
which might be out of line with future earning possibilities. Indeed, at a time when disposable incomes are
much in excess of the supply of new goods and services
coming into the market, there is a very real danger of
a boom based largely on cash purchases which could
collapse almost as readily as one based on credit
purchases.
In any event, there is a fundamental difference
between controlling the prices of ordinary goods and
services and attempting to control property values.
Price control of current production can be based largely
on recent and current conditions. Price control of
property values inevitably necessitates making a judgment of earning possibilities for some years into the
future. In regard to farm land, for example, the current
level of values would probably be low if it were believed
that farm income were likely to continue indefinitely
close to the current rate, whereas it might be high if a
return to the pre-war rate of income were anticipated.
Objections to Imposing Control.—While recognizing
that an inflationary increase in property values is a
danger to be faced, it does not seem feasible to introduce
ceilings on property values at the present time, though
it is conceivable that the problem might necessitate such
action at a later date. As pointed out above, fixation
of ceilings for property values involves taking a view,
whether deliberately • or unconsciously, as to the longterm economic outlook. Errors made in such a forecast
would involve far more serious injustice to the persons
affected and disturbance to the economic structure than
any mistakes which may be made if the prices of ordinary goods and services happen to be set too high or too
low. It would not only be extremely difficult to make
such a forecast of trends during the next decade or more
but control of property values would involve a degree
of state planning for the future which appears to be
quite out of line with the emergency character of the
existing control agencies. Furthermore, it is very questionable whether such an extensive and new form of
control should be introduced now that the war in Europe
is over, and bearing in mind that the production of
capital assets should be less restricted by shortages of
labour and supplies. Another major difficulty is the
fact that serious discrimination would be involved unless all other forms of capital assets, including the prices
of stocks and bonds, were controlled. The property
owners of Canada would have genuine justification for
complaint if real property values were controlled while
other forms of investment were not similarly regulated.
In addition, unless all capital transactions were subject
to control, there would be widespread possibilities of
evading ceilings on real property through setting up
incorporated companies to own real estate and sell
shares, through dealings1 in options, and through collateral deals, unrecorded cash payments and the like.
Finally, it is extraordinarily difficult to find a suitable yardstick for control of property values. The following have been considered and no one of them appears
satisfactory:
(a) Setting basic period ceilings, while consistent
with the price ceiling policy, would be quite
impracticable since relatively few properties
were sold during the basic period and since the
manufacture of synthetic basic period prices
for the vast majority of properties coming on
the market would be extremely difficult. Moreover, for the reasons stated above, basic period
prices would probably be inappropriate.
(6) The use of local assessments as an indication
of relative (not absolute) values of individual
24
More recently, the Government decided to suspend
properties has been considered and investigated.
Unfortunately, such assessments are not re- the operation of all outstanding notices to vacate given
garded as an accurate indicator and marked by landlords of self-contained dwellings (except in the
differences in the bases of assessment exist as case of notices given by discharged members of the
betweeen different municipalities.
Armed Forces who wish to re-occupy dwellings in which '
(c) Special valuation of all properties would repre- they were living at the time of enlistment) in order to
sent so big a task as to make it out of the meet a serious situation with respect to evictions. As
question.
was stated at the time, the Suspension Order will be
(d) Even the less ambitious system of setting up withdrawn just as soon as present conditions of emergcommittees in each town or city to value all ency are remedied. In fact some of the original regulathose properties coming on the market would be tions imposed in congested areas have already been
an enormous job and the decisions made by
such committees would necessarily be arbitary relaxed. Thus the requirement that persons seeking
and would undoubtedly vary with the personnel accommodation must first obtain a permit has been
relaxed so as to apply only to those persons who were
concerned.
(e) Another system would be to set maximum prices not residents of the area at that time. Federal internot to exceed the price received at the last sale, vention can only be justified in this sphere to aid in
plus the value of improvements made since, and meeting acute emergency conditions and it will be withminus depreciation or deterioration since. This drawn just as soon as there is reason to believe that
again would be a huge administrative task and the problem can be handled on a local basis.
would discriminate in favour of property which
had been sold recently.
5. CONSUMER CREDIT CONTROLS
(/) Capitalization of authorized rentals on a standard percentage basis would also be undesirable.
Another type of control exercised by the Wartime
I t would not only be difficult to arrive at an Prices and Trade Board concerns consumer credit. The
appropriate percentage but it would translate
any divergencies in rentals into capital values regulations in this field require a minimum down payment of one-third of the cash price on instalment purand would thus involve serious inequity.
chases of most consumer goods and payment of the
balance of the credit price in from six to fifteen months,
EMERGENCY SHELTER CONTROLS
depending on the type of article and the amount
Toward the end of 1944, the shortage of housing financed. They also cover charge accounts requiring
accommodation had reached such a point in some of payment by the twenty-fifth day of the month following
the larger cities and the demands for federal assistance the month in which the purchases are made. Here, as in
had become so urgent that the Government gave the most other spheres, the Prices Board's activities have
Prices Board broad power to "co-ordinate all activities been carried on under the emergency powers of the
relating to the transfer of population into such areas Dominion, and consumer credit would normally fall
and to the control and use of available shelter therein." within the jurisdiction of the Provinces.
The Government recognized that there were special
Place in Stabilization Program,—Consumer credit
problems peculiar to each area and that full co-operation
of the local groups affected would be essential to the regulations, first introduced in October, 1941, were
successful administration of the new regulations. It undertaken as part of the general anti-inflation policy
therefore proposed to apply the new powers only with of the Government. Their main purposes were:
the expressed approval of the municipality concerned.
(a) To limit the creation of credit and the expansion
Montreal, Ottawa, Toronto, Vancouver and Victoria
of public buying power. At a time when conwere designated as congested areas under the regulations
sumer incomes were rising rapidly and beginning
shortly after the announcement of the plan. Early in
to press upon available supplies, it was desirable
January, 1945, Emergency Shelter Administrators were
to check accumulation of current demands
appointed for these cities with the exception of Montthrough control of credit purchases.
real, where the local authorities decided not to come
(b)
To
lessen the demand for scarce goods. Many
under the scheme, and soon afterwards further appointof
the
goods which are frequently bought on
ments were made for Hamilton and Hull.
credit, such as household appliances and furniIn each of these areas, the Administrator established
ture, were becoming scarce or seemed likely to
a permit system applicable to all persons seeking family
be in short supply in the near future.
accommodation. Persons from outside the area were
(c) To lessen the cost of doing retail business through
not given permits unless their services could be regarded
reducing bad debts, costs of collection, bookas essential to war industry or the production of essenkeeping, etc., and to improve the liquidity of
tial civilian goods. Persons within the area were usually
retail merchants. Reducing cost of merchandisgiven permits without question although in many cases
ing was regarded as a means of helping merchants
the size of the accommodation that could be rented or
to keep their prices and costs down.
occupied was limited by the permit. The Emergency
(d) To improve the financial position of consumer?
Shelter Administrations absorbed the National HousIt was clearly desirable during the war that
ing Registries in the congested areas and established
consumers should not pile up a heavy load of
them as centres of a properly co-ordinated community
debt likely to handicap them and restrict their
effort to secure the maximum family shelter from existpurchases in the later transition from war to
ing accommodations.
peace-time activities.
25
(e) To help increase individual subscriptions to
war loans. It was to be expected that a curtailment in instalment payments would have the
effect of increasing sales of Victory Bonds.
Because of the emergency character of these regulations it was not appropriate for this Board to give
weight to the longer-range possibilities of consumer
credit regulation as a means of combating fluctuations
in the business cycle by lessening the stimulus to business in good times and increasing it in bad times* The
experience of the Prices Board, however, is relevant to
the consideration of such possibilities by the Dominion
Government and the Provinces.
Effects of Regulations.—It is not feasible to put any
quantitative measurement on the role of consumer credit
control as an anti-inflation weapon. It is clear that the
purposes of the regulations have all been realized to a
considerable degree. Studies conducted by the Prices
Board show that the relative importance of credit and
instalment sales has declined substantially since the
regulations were introduced. Using a large sample of
retail outlets extensively engaged in instalment selling,
the studies show the following changes from the first
half of 1941 (prior to the introduction of the regulations) to the first half of 1944:
(a) The proportion of instalment sales to total sales
has decreased sharply.
Type oj Store
Department
Clothing
Furs
Furniture
Jewellery
Jan.-June
1941
15%
22%
46%
65%
23%
Jan.-June
1944
7%
12%
36%
37%
9%
(5) The amount of instalment accounts outstanding
has been greatly reduced.
Type of Store
Department
Clothing
Furs
Furniture
Jewellery
Decline from
June 80, 1941, to
June 80, 1944
70%
53%
21%
75%
77%
(c) The proportion of cash sales has increased
substantially.
Type oj Store
Department
Clothing
'
Furs
Furniture
Jewellery
JanrJune
1941
68%
53%
28%
21%
48%
Jan.-June
*9U
76%
64%
34%
40%
67%
To what extent these changes have been a result of
the regulations cannot be determined. In part, of course,
they have reflected the combined influence of the high
level of consumer income and shortages of many goods
which are normally sold on a credit basis. Neverthe-
less, they are the sort of results that the regulations
were designed to promote and it is reasonable to conclude that the regulations have had a significant influence in bringing them about. Moreover, the Prices
Board's studies as well as trade opinion strongly indicate
that the regulations have reduced the cost of doing
retail business and thus aided in the maintenance of
the price ceiling. The regulations have had a favourable reception in the retail trade and, indeed, many
smaller retailers express the view that they should be
continued into the post-war period. Those connected
with the sale of war bonds have expressed the opinion
that tKe regulations are helpful in war financing. There
has been little, if any, criticism of them from consumers
in general.
Policy of Decontrol.—Subject to frequent review as
to their usefulness, it is believed that these controls
should be continued for the time being. Most of the
original reasons for their introduction are still applicable.
(a) It is still desirable to limit the current buying
power of the public. The threat of inflation
fostered by accumulated purchasing power, warinflated costs, and temporary shortages may continue for an appreciable time.
(6) Severe shortages of goods normally bought on
credit still prevail, especially of consumer durable goods and to some extent of clothing and
other lines. While production of such consumer
durable goods as automobiles and electric refrigerators is now being resumed, a considerable time
will elapse before output can adequately meet the
the full demand, enlarged as it is by deferred
needs and accumulated savings. As stated earlier,
resumed production will so far as feasible be
priced at basic period prices and anything which
will tend to enlarge the demand and thus fortify
the argument that the public is capable of paying
and willing to pay higher prices will increase the
difficulty of carrying out this aspect of Government policy and increase the incentive to undertake illegal transactions. Moreover, in the early
stages of the resumption of such output
there may be a demand for priority or rationing
schemes to apportion the limited initial output
fairly among the public. Because of their great
administrative difficulty and because it is
expected that production will be expanded quite
rapidly, the Prices Board intends to avoid such
schemes*—if at all feasible. From this point of
view, also, it would not be desirable to enhance
such demands by the removal of consumer credit
regulations in the immediate future.
(c) Pressure on the retail ceiling still remains and so
long as it is severe the advantages of increased
liquidity and lessened costs resulting from consumer credit regulations are apparent. While
a removal of these regulations would not necessarily result in any immediate or substantial
increases in retail costs or decreases in liquidity,
the tendency would be in that direction.
(d) The consumer has greatly increased his liquidity
during the war, both by paying off debts and
accumulating savings. His deferred demands are
substantial. Premature removal of consumer
26
credit regulations would simply permit these
demands to be increased in advance of any corresponding increase in available supplies. Relaxation of these regulations at an appropriate
time will provide some stimulus to industry. Such
stimulus is not yet needed and could, indeed,
have harmful results if applied while shortages
still exist. It might be needed and helpful at a
later date when goods are more plentiful and
demand may be slackening.
(e) Immediate removal of the regulations might
have unfortunate effects in that to ease the terms
on which the public can buy consumer goods, and
particularly durable consumer goods like furniture and jewellery, would run counter to the
appeals to buy Victory Bonds.
Some merchants would perhaps like to see these
regulations removed now, in order to prepare plans for
sales promotion against the time when supplies become
more plentiful and to improve their competitive position.
This, however, is scarcely a sufficient reason for dropping
the controls, so long as they have an important antiinflation value. They apply to almost all types of retail
distributors and restrict only the terms of credit sales.
They are general, not specific, restrictions and do not
constitute detailed interference with the distributor's
business, as do many of the supply controls which have
had to be applied to manufacturers and to some extent
to distributors.
It may be noted that the consumer credit regulations
themselves provide exemption in the case of credit
extended for business purposes, and special provisions
have now been made under the Bank Act and the Farm
Improvement Loans Act under which farmers are enabled
to obtain credit at low interest rates, free of consumer
credit restrictions, for the purchase of agricultural equipment and articles intended to raise the standard of
living on the farm.
Longer-Range Possibilities.—Consumer credit control
has a possible longer-range value as an instrument of
monetary and fiscal policy but the fact that powers
over consumer credit fall within the jurisdiction of the
Provinces under the British North America Act poses
serious difficulties in its use for this purpose. Credit
terms could be relaxed or stiffened from time to time as
a part of a concerted policy designed to level off the peaks
and troughs of the business cycle. This could best be
done by a central authority, such as the Bank of
Canada. It is doubtful whether a system of provincial
regulation would be well adapted for this purpose, inasmuch as the various provinces would probably have
different ideas of credit control, and in any case it would
be difficult for them to follow a concerted policy. A
certain amount of the instalment business of Canada
is conducted on an inter-provincial basis, for example,
by mail order establishments, which, working from Winnipeg under Manitoba laws, cover Western Canada,
and from Toronto, under Ontario laws, cover much of
Eastern Canada. This situation would create an
especially difficult problem for provincial legislation and
administration in this field.
A second type of regulation which might be considered of post-war value would be one similar to the
recent British Hire-Purchase Act, which governs the
conditions of instalment selling, repossession, etc., with
a view to standardization of trade practices defining the
rights and protecting the interests of the parties concerned in such transactions.
For these reasons controls of this nature would
appear to be an appropriate subject for Dominionprovincial discussion.
PART II
WARTIME INDUSTRIES CONTROL BOARD
Control over the production and distribution of
certain 'basic materials and services peculiarly important
to the war program is exercised 'by Controllers who are
members of the Wartime Industries Control Board.
In this category, and therefore placed under the
Wartime Industries Control Board, are such materials
and industries as steel, all non-ferrous metals, all
chemicals, oil, timber, rubber, power, ship repairs and
salvage, coal, construction, motor vehicle and aircraft.
Other materials and products such as machine tools,
silk, cork, etc. have also from time to time been under
the W.I.C.B. A Priorities Officer functions within the
Wartime Industries Control Board as the Government
officer responsible for the supervision of matters having
to do with priorities in delivery of Canadian materials
required for war production, and to assist Canadian
business organizations in their relations with priority
authorities in other countries on which Canada is
dependent for essential supplies.
Controllers were first appointed in June, 1940. In
the following five years an extensive system of controls
over the production, distribution and use of materials
was established to redirect the normal peacetime flow
of materials to provide for the needs of the war program,
Import and export controls have also formed an
essential part of the control structure.
These controls were established and have been
administered for the purpose of ensuring that the war
production needs of Canada and the other United
Nations would be met, and the basic industries essential
to the needs of the civilian economy would be afforded
the maximum assistance in a period of world shortages
of materials and manpower. In so doing it has been
necessary to take account not only of conditions within
Canada, but of the supply position and the development of controls in other countries. Canada is heavily
dependent for industrial components and raw materials
upon both the United States and the United Kingdom,
and controls in Canada have had to be co-ordinated
with controls in these countries. Similarly Canada is
the source of supply of many materials such as timber,
copper, lead, zinc, various chemicals, etc., upon which
the United Kingdom, the United States, Russia and
other allied countries are in a large measure dependent
for both military and essential civilian requirements.
It is to be noted that in addition to the war production responsibilities already referred to, the scope of
activities of Controllers has alsp extended somewhat
into the field of civilian supply. The Wartime Prices
and Trade Board is the control agency primarily responsible for matters of civilian supply, as contrasted with
war supply which rests primarily with the Munitions
and Supply Controls. However, most materials essential to war production are also basic to the civilian
industrial economy. There would have been confusion
and consequent administrative difficulties if two control
agencies had operated in respect of the same material,
one interested only in its war use and the other only in
its civilian distribution. Therefore Controllers of the
Wartime Industries Control Board have, in addition to
providing for war requirements, exercised supervision
over production and distribution of that proportion of
their respective materials which has gone to the civilian
economy. In addition each Controller of the Wartime
Industries Control Board was made also the Administrator of the Wartime Prices and Trade Board in
his particular field, for purposes of exercising price
controls. In this way and through interlocking
membership of the two Boards, the Chairman of each
being a member of the other, co-ordination is achieved
between the two Boards.
The types of control exercised by Controllers (production directives, restrictions on distribution and use,
restrictions on manufacture, rationing, etc.), have been
parallelled by those employed by Administrators of the
Prices Board and the problems met by each of the two
groups in the field of supply are similar. As the period
of greatest war production requirements passes, the
materials under Controllers are being steadily returned
to civilian uses. Accordingly, it can be said that to-day
most Controllers identified with the Department of
Munitions and Supply see perhaps a larger proportion
of the output of materials under their jurisdiction going
to civilian than to direct war production.
Under these circumstances, the statement outlining
the supply and distribution problems of the Wartime
Prices and Trade Board which is included in this same .
volume, covers in general the position of the Wartime
Industries Control Board. Attention might be drawn,
however, to a few points where the emphasis is perhaps
slightly different, although the essence of the problem
remains the same.
The transition period is, at least in its initial stages,
still a period of active warfare. Under these circumstances, the Wartime Industries Control Board must
continue to keep in mind the requirements of war production. In many materials, the importance of these
requirements has been declining, either by a positive
falling off in demand or by an improvement in supply,
but this has not been the case with respect to all
materials. Even in those materials where there is now
a sufficient supply to meet the essential needs of the
civilian population, controls cannot in all cases be
removed or the unrestricted civilian demand might
seriously impinge on war supply. While supply controls
are being steadily reduced, as fast as supplies Justify,
some controls will have to be continued until the end
of the Pacific war, and a limited number may have to
be maintained even somewhat longer on a purely supply
consideration.
It has already been noted that Canada is dependent
upon imports for many important raw materials, the
availability of which is governed by conditions outside
Canadian control. This is also true of many fabricated
items, particularly items of industrial equipment. Such
materials as tin and natural rubber, and even so vital a
27
28
material as coal might continue in short supply for some
time after the conclusion of hostilities with Japan, until
world productive facilities destroyed or interfered with
by war are restored, and transportation becomes available. In addition, there will be many other claimants
besides Canada for such materials, and for some time
the quantities made available to this country may
depend upon international allocation arrangements.
Where materials or components are made available to
Canada only through arrangements which rest upon the
understanding that Canada will exercise control upon
their distribution and use in this country, an obligation
rests upon the Dominion government to continue
controls in such fields. Such use of controls by the
Dominion government is, of course, dictated by purely
supply considerations.
In reverse, Canada is the source of supply for various
materials upon which other countries are dependent for
their continuing war production, and will be dependent
for reconstruction of economies which have been disrupted by the war. Export demands for timber, for
example, may be expected to continue at a high level
until the end of the Japanese war and probably for
some time after. Close to fifty per cent of our lumber
output is being exported to our allies to meet their
essential needs. A similar situation exists to-day in the
field of motor vehicles, where supply shortages of trucks
within Canada are caused to some degree by Canadian
shipments abroad, through our participation in UNRRA.
A demand for these exports will continue both for war
and for civilian purposes. Canada cannot claim supplies
of coal and tin, or cotton or other materials in short
supply, from other countries unless we participate in
international co-operation and share with other countries
those materials which we produce and they require.
With respect to export controls, in some instances
these must continue for a short period to conserve
supplies for domestic industry. The power of export
demands would !be sufficient in various fields to drain
the Canadian market if no controls existed while this
war-generated pressure remains.
The Wartime Industries Control Board, in accordance with policy instructions of the Government, has
subjected the operation of its controls and the changing
conditions of supply to the closest scrutiny, and has
relaxed or removed controls as rapidly as supply conditions warrant. Because of the circumstances outlined
above, however, it would appear that conditions of
inadequate supply will in some cases continue beyond
the period of actual hostilities as a direct result of
abnormal war-generated forces.
The Wartime Industries Control Board, together with
other wartime control agencies, has been instructed by
the Government under conditions of inadequate supply
to facilitate meeting the more urgent requirements of
reconstruction, including the first steps in industrial
reconversion, the provision of more housing and the
development of export markets of a peacetime character;
to enable the re-equipment of agriculture and other
primary industries and to assist in the rehabilitation
of liberated countries. Within the guiding principle
that controls over materials and services are identified
with scarcity and are to toe removed immediately
supplies justify, some continuation of wartime controls
will undoubtedly be required for a limited period beyond
the termination of hostilities to implement these instructions in respect to certain of the materials now under
the jurisdiction of the Wartime Industries Control
Board.
PART III
DEPARTMENT OF LABOUR
FEDERAL WAGE CONTROL
The initial step in the wartime wage stabilization
policy was that enunciated by Order-in-Council P.C.
7440 of December 16, 1940, which was passed for the
guidance of Boards of Conciliation constituted under
authority of the Industrial Disputes Investigation Act.
Order-in-Council P.C. 7440 directed attention of such
Boards of Conciliation to the desirability of maintaining
existing wage rates and recommending that additional
compensation, when found equitable, should be by payment of a Cost of Living Bonus based upon changes in
the cost of living subsequent to August, 1939, as revealed
by the Cost of Living Index prepared by the Dominion
Bureau of Statistics. Order-in-Council P.C. 7440 only
applied to industries covered by the Industrial Disputes
Investigation Act as extended by Order-in-Council P.C.
3495 of November 7, 1939.
However, by 1941, it became apparent that because
of the expansion of Canada's war effort and consequent
scarcities of materials, supplies and manpower, there
would result a serious inflation in Canada with the probability of great economic dislocation and of hardship
and suffering to the Canadian community unless preventive measures were taken.
Consequently, the Government of Canada deemed it
essential to the war effort and to the national welfare,
both in the war and in the post-war period, to take
measures leading to economic stabilization in Canada
during the War, including as necessary components, the
maintenance of price ceilings and the control of wage
rates. Order-in-Council P.C. 8253 of October 24, 1941,
called the "Wartime Wages and Cost of Living Bonus
Order*7, with subsequent amendments, gave effect to the
wage stabilization policy. It applied to 'all employers
in Canada with designated exceptions and covered their
employees paid at a rate of less than $175 per month
and to* those receiving in excess of this amount who were
not above the rank of foreman or comparable rank;
made mandatory the payment by employers of a cost
of living bonus based on the rise in the adjusted Cost of
Living Index number of the Dominion Bureau of Statistics above the adjusted index for October, 1941, and
provided for the issuance of General Orders by the
National War Labour Board at quarterly intervals
requiring adjustments in Cost of Living bonus to conform to changes in the Cost of Living Index. To administer Order-in-Council, P.C. 8253, a National War
Labour Board was established as were nine Regional
War Labour Boards one in each province. Employers
and employees had equal representation on these Boards.
Order-in-Council, P.C. 8253 precluded employers,
without first securing the authority of a War Labour
Board, from increasing or decreasing wage rates in effect
for the occupational classifications in their employ on
November 15, 1941, from establishing new occupational
classifications, or from changing working conditions
in any manner which would affect employees' remuneration.
On application War Labour Boards might approve
wage increases where wages were found to be below
prevailing rates for comparable employees as paid by
comparable employers. Employers might, however,
increase or decrease wages within the limits of a range
in effect on November 15, 1941, or upon promotion or
demotion from one occupational classification to another.
Experience in administering Order-in-Council, P.C.
8253, as amended, indicated the desirability of introducing further amendments and of clarifying certain of its
provisions. On July 10,1942, it was accordingly revoked
and was replaced by Order-in-Council, P.C. 5963, which
remained in effect until December 9, 1943, when it was
in turn replaced by Order-in-Council, P.C. 9384, of that
date, entitled "Wartime Wages Control Order, 1943".
Order-in-Council, P.C. 9384, was applicable to
employees who were not above the rank of foreman or
who were not earning at a rate in excess of $195 per
month regardless of rank, but amending Order-in-Council, P.C. 655, of January 30, 1945, brought all employees
who on the basis of duties or function might be above the
rank of foreman or comparable rank under Order-inCouncil, P.C. 9384, if their salary rate was less than
$250 per month.
Except for employees of Crown Companies and of
certain designated governmental agencies, employees of
the Dominion Government were not included under the
Wartime Wages Control Order, 1943, nor under its
. predecessor Orders-in-Council.
The Wartime Wages Control Order, 1943, P.C. 9384,
as amended, provided that administration would continue by the National War Labour Board and by
Regional War Labour Boards in each of the nine Canadian Provinces. In May, 1943, the Western Labour
Board was established by Order-in-Council, P.C. 3870
to administer the wage stabilization policy on defence
projects in Alberta, British Columbia, the Yukon and
the North West Territories insofar as Canadian
employees on such projects were concerned.
When the Wartime Wages Control Order, 1943, P.C.
9384, was promulgated the Government of Canada took
occasion to declare as its policy that it would take all
practical measures to stabilize living costs at the level
existing in December, 1943, and announced that such
policy would be reviewed if any appreciable change in
living costs occurred. In furtherance of that stabilization policy so affirmed, Order-in-Council, P.C. 9384,
provided that cost of living bonuses which fluctuated
with movements in the Cost of Living .Index and which
had been instituted under the previously governing
Orders-in-Council were to be incorporated into wage
rates as from the first payroll period commencing on or
after February 15, 1944. This merger has, therefore,
29
30
now been implemented by employers subject to the
Order and no appreciable change in living costs has since
occurred.
The Wartime Wages Control Order, 1943, P.C. 9384,
as amended, also made more apt provision for the rectification of any gross inequalities or gross injustices in
existing wage rates insofar as this is possible consistently
with the paramount principles of economic stabilization
so essential to the national welfare. The administration
of this Order throughout the Dominion has controlled to
a degree unit cost of production and, therefore, has contributed to overall price stabilization.
The National War Labour Board is comprised of the
Honourable Mr. Justice M. B. Archibald (Chairman)
and Messrs. Leon Lalande and1 J. A. Bell as members.
Judge Cameron was appointed Alternate Chairman of
the National Board under Order-in-Council, P.C. 6003,
dated August 1, 1944.
From the inception of wage control on November 15,
1941, up to March 31, 1945, the National and Regional
War Labour Boards had dealt with 57,746 applications
involving wage increases or cost of living bonus adjustments. During the same period 27,336 additional applications were dealt with in respect of other matters affecting compensation of employees, inauguration of welfare
plans or for the establishment of new occupational
classifications.
While the administration of the Wartime Wages
Control Order is primarily the responsibility of the
National Board, that Board in pursuance of authority
conferred by the Order has assigned certain duties and
responsibilities of administration to the Regional Boards.
It is understandable that the Regional Boards might
vary in their interpretation and administration of the
Order. Order-in-Council, P.C. 8253, and Order-inCouncil, P.C. 5963, contained no provision for the review
of decisions of Regional Boards by the National Board
to secure uniform administration but this responsibility
was placed upon the National Board by Order-in-Council, P.C. 9384. Pursuant to that direction, the National
Board in the fiscal year 1944*45 had reviewed 28,211 of
the Findings and Directions made by Regional Boards.
Of these, 2,498 were placed on review, of which 2,288
were passed after further development of the pertinent
facts and in 162 cases, up to March 31, 1945, the
Regional Board's Findings and Directions made thereon
were revoked or amended in some particular.
As with the previous Wage Control Order, provision
was made in Order-in-Council, P.C. 9384, under which
any person interested in or affected by a decision of a
Regional Board may carry appeal to the National Board
with certain limitations as to time for lodging such
appeal. During the fiscal year ending March 31, 1945,
the National Board dealt with 250 appeals from decisions
of Regional Boards.
Early in 1943, a plan was arranged between the
National War Labour Board and the Unemployment
Insurance Commission under which in all provinces,
other than Quebec, Unemployment Insurance Commission Inspectors check on employers in regard to compliance with the AVartime Wages Control Order. In the
Province of Quebec Inspectors attached to the Provincial
Minimum Wage Commission and Parity Committees
carry out inspections on behalf of the Regional War
Labour Board. In the majority of provinces there are
also attached to Regional War Labour Boards one or
more inspectors who investigate specific complaints
having reference to infringements of the Wartime Wages
Control Order and conduct spot examinations, and, generally, provincial inspection staffs co-operate with the
Regional Boards in these matters.
It is axiomatic that without a degree of stability in
that portion of production and distribution costs represented by labour, it would be difficult, if not impossible,
to hold price ceilings. It may be expected that the
transition period from a wartime economy to a peacetime economy will present many difficulties which would
be accentuated if controls over prices and wages were
suddenly removed.
The experience following the last war indicates something of the hardships which might be expected if the
inflationary elements present now as then were allowed
free play.
Following the last war, the Cost of Living Index
(July, 1914: 100) had advanced to 190:8 by June, 1920.
Wage rates never did catch up with soaring prices.
The rise in the adjusted Cost of Living Index number
(August, 1939-100-8 : 100) during the period of this
war to June, 1945 is 18-7 points. This time real wages
as represented by the purchasing power of the wage
dollar, have been maintained as the result of Price Regulations and Wage Control. To continue to protect that
purchasing power, to assure the orderly production and
distribution of consumer goods and to assist in the
re-establishment of Canada's export trade, so essential
to full employment, some measure of wage control will
be needed after the war emergency is over as a corollary
of price ceilings.
When military needs relax, when factories reconvert,
when farm products flow to civilian markets, when homes
are built, when export trade is again on a sound basis,
then wage control and price control could disappear.
In the meantime and as progress is made in the return to
a balanced economy, they could be amended and relaxed
as circumstances may render advisable.
@FedFRASER