Canada vs. USA Economic Wealth War

 Instead of stopping the economic downturn that was happening before the war, it got worse when the war started, with layoffs, contract cancellations, and big budget cuts in the already troubled railway industry.

To get money for the war's small start-up costs, Ottawa borrowed from standard capital markets, first from Britain and then from the US when British loans ran out because of needs at home. Many people didn't think that Canada's money sources would have to be used up before the war ended, and even fewer didn't think that taxes should be used to pay for war costs instead of war loans.

The war did not end quickly, though. The work needed to keep huge forces in the field kept the Canadian economy from going into a recession. It also needed a lot of money. The government budget had grown from $185 million before the war to more than $740 million at its peak during the war. The debt also went up four times to $1.2 billion. Before the war, more than 85% of the government's income came from customs fees, postal rates, and tariffs on imported goods. New tariffs and higher fees alone would not be enough to cover the hugely higher costs of war. Ottawa borrowed money from Canadians, which was a surprise, to cover the gap.

Taking out loans from Canadians

It was a surprise that so many Canadians were willing to lend money to their own government by buying war bonds. In Canada's past, no bond issue had ever raised more than $5 million. But Ottawa's first "victory bond" drive raised $100 million, which was twice what was expected. The next drives were just as good. Tens of thousands of posters were used in publicity campaigns to connect buying bonds directly to helping and taking care of troops abroad. The posters had a wide range of messages, from well-known poems to emotional pictures, to get people to donate. Interest rates on loans with terms of up to 20 years and up to 5.5% were also a strong incentive.

During the war, more than $2 billion worth of bonds were bought in the United States. This was ten times the amount of money raised abroad. Canada borrowed more than $2 billion to pay for the war, which meant that future generations would have to pay for it. However, most of this debt was due to Canadians, not foreign lenders. It would work again during the Second World War with the "victory bonds" program. Canada Savings Bonds today are a direct result of these attempts during the war.

How to Tax Profits and Income

The government's spending decisions were not just affected by the costs of the war. Ottawa came under more and more political pressure as the war went on to make sure that businesses and the rich paid their fair share of the costs. Farmer groups, labor unions, churches, and other groups all asked for the "conscription of wealth." Reports of dishonest businesspeople or corrupt government officials making money off of the war made for shocking news and hurt the government's message that everyone should "do their bit."

In 1916 and 1917, the federal government put new taxes on business earnings and personal incomes. The latter was only supposed to last for a short time because of the war, but it set important examples. However, the war ended before either of them had any real effects. In 1919, taxes on individuals and businesses together made up only 3.4% of all government income. A lot of Canadians didn't pay any tax, and those who did paid very little.How a War Economy Changed Over Time

When war broke out, Canada was in danger of an economic collapse. Orders for goods that were already being made were canceled, some companies shut down, and work stopped on many civilian projects that were started before the war. Some people were afraid that the war would bring down Canada's already weak economy. But the need for war materials, tools, and shells quickly boosted the economy and created jobs. As production went up, worries of collapse were replaced by the difficulties of fast growth. By 1916, there was almost no unemployment in Canada because of the needs of the military, business, and agriculture.

Setting up production during wartime

The military's almost endless need for huge amounts of gun shells was one of the biggest economic surprises of the war. Armies used millions of them in the big barrages and siege-like fights on the Western Front, and the Allies didn't have a way to make even close to the amount that was needed.

Sam Hughes, Canada's Minister of Militia and Defense, set up the Shell Committee at first to coordinate production. But when it failed to keep its promises, Canada and Britain got angry at each other, and there were many rumors of corruption.

Imperial Board for Munitions Late in 1915, Prime Minister Borden got rid of the Shell Committee and replaced it with the Imperial Munitions Board (IMB). The IMB only reported to Britain but was run by a Canadian. The Board was set up in a way that followed good business practices when Joseph Flavelle was in charge. The Board also hired professional managers to handle its operations. It hired 30,000 women to work in its plants and offices, which helped with the lack of workers. Impressive Growth in Production and Scope During the war, Flavelle's leadership managed a huge increase in production. In 1916, only a few companies were able to make shells, but by 1917, dozens of companies, including crown corporations, were making about $2 million worth of goods every day.

Later, the IMB was given more responsibility for things like propellants, metal cases, and complicated fuses. Almost a third of all British shells were being made in Canada by 1917. As part of a large effort to train pilots, the IMB built ships, planes, and airfields. Its 600 factories had made 103 military ships, 2,600 training planes, and 30 flying boats by the end of the war. Over 289,000 people worked for the IMB when it shut down in 1919, making it Canada's largest civilian workplace.