The Business Outlook

A Normal Crop this Year will be Double the Value of that of Last Year

JOHN APPLETON April 1 1915

The Business Outlook

A Normal Crop this Year will be Double the Value of that of Last Year

JOHN APPLETON April 1 1915

The Business Outlook

A Normal Crop this Year will be Double the Value of that of Last Year

JOHN APPLETON

Editor of The Financial Post

Editor’s Xote.—Mr. Appleton points out that the addition of $50,000,000 of new taxes, the proceeds of which do not go into reproductive undertakings, will reduce the buying power of the people very considerably, and will depress business. In a more hopeful view he says that the high prices will stimulate production and that economic history does not furnish an instance of their not failing to do so. The farmers of Canada never had a better prospect ahead of them. .-1 normal harvest—not a bumper crop, but an average one—will, in Mr. Appleton’s opinion—bring Canadian business back to normal, despite war and the incidence of heavier taxes.

DURING February and March developments of the utmost importance have taken place which are detrimental to business. That it is dull is the general admission and those who do not admit it are the exceptions proving the rule. Starting upon the assumption that trade has fallen off—both international and domestic—we can derive some consolation from the fact that it might be worse. The dominating factor in business and one that has become, as such, accentuated recently is that of the war. Its maintenance and prosecution has continued to withdraw shipping from its customary trade routes and what remains demands a high rate of remuneration for its services. Higher insurance rates also add to the sum of obstacles in the way of commerce. Prices of commodities, except in special cases, have not risen to a point that offsets increased charges incident to carrying and distribution. We have reference here to our One Certain exportable commodities.

Prospect— Flour mills are no doubt

For the busy, and what wheat or

Farmer. other cereal we have for

export is in special demand. To these we might add products of the farm which is our greatest industry. But Canada’s prosperity, or hopes of it, cannot be said to be healthy when the capital invested in her mineral, metal, railways, textile and timber enterprises is not earning reasonable remuneration. Since the beginning of the year the outlook has not improved nor is it in any way clearer. The impenetrable war cloud obscures the future and hence a thousand conjectures under the head of “After the War—What?”

It would be quite erroneous to suppose that the Canadian budget reflects a state of business wholly due to the war. Before the bomb throwing in BosWhat the nia—the pretext on which

Budget Germany acted—the signs

Means— of declining revenue from

Taxation. Canadian customs duties

were very obvious. New taxes would have been imposed in any case and they would not have been lighter

than those announced. Additional taxes will have to be imposed to meet war expenditure. Up to the present Britain’s purse has been wide open to us and for a time will remain so. That seems to be the probability. Meanwhile Canada has to provide for a deficit for the current year, on ordinary revenue and expenditure account of $60,000,000. New taxes have been imposed, estimated to raise $30,000,000. Presumably the balance will be found by borrowing. But there is another important factor, that of the deficits of our provinces. Ontario Government admits one of about $700,000, Nova Scotia one of $200,000 and Manitoba, $126,000. Oppositions in each case, of course, say the deficits are very much greater. Whatever is the truth one thing we can take for granted is that the deficits will be placed at as low a figure as adroit bookkeeping and juggling of accounts will make them. The meaning of these deficits and the deplorably high rate of expenditure being maintained is more taxation—from the provinces as well as the Government. Cities cannot be looked to to materially reduce their taxes because so large a proportion of their outlay is either statutory or in the form of fixed charges the result of the heavy capital expenditure of recent years. Business therefore has to reckon with more taxation when it reorganizes itself after the paralysis of recent months.

Business men may well ponder the question of taxation. It is for them to determine how it will affect their income or profits. Every adult in Higher Taxes Canada will have to pay Detrimental his or her share of an inTo Business. crease of $50,000,000 annually, or approximately $8 per head. If the Dominion Government imposes $30,000,000; the provincial Governments, $10,000,000; and the cities and municipalities another $10,000,000—all reasonable estimates and well within the mark—-the per capita increase will not be less than the figure named, that is $8 per head. If this money were being used to bring new settlers to the land to share the burden, to build railways that would increase production, or to invest in some public work that would give natural wealth exchangeable value, it would be a national investment that would eventually be remunerative. However, the new taxation equal to $8 per capita is very largely for interest on debt already incurred, and in the course of another year, or thereabouts there will be another substantial increase. Whatever business a man employs his energy or capital in he is faced with the fact that the people he has to deal with have to find, per head, $8 a year more for taxes, and in two years, at least $12 per year more. Of course, in an article of this character we are not dealing with the taxation in an ethical or strictly economic sense. Our purpose is merely to indicate that the individual with whom business men in Canada have to deal has now to find as a first charge on all his resources an additional $8 per year in the form of taxes. For that sum he gets a return in many forms the outstanding one at the present time being national safety.

We need not dwell upon the fact that any shrewd business man will know that the public will not buy so much when they have as much as Public Has $50,000,000 less to spend. $50,000,000 Some class will buy less Less to Spend, but the question remains, which? In the operation of the higher tariff certain articles will be advanced in price to the extent of the additional duty paid. The fact that from the new tariff additional revenue is expected is proof clear enough that the consumer pays the tax. We can set aside that question. Some articles, however, may be put up to such a figure as to kill the demand for them. A consumer or a buyer may say the price of the article he used, as under the old tariff was as much as was profitable to pay for it. That being the case the consumer will turn his demands into other lines. Instead of being in a position to pay a higher figure he will, under the burden of higher taxes, be compelled to look for something to serve his purpose that will cost less. From whatever angle viewed we cannot regard the new taxes as any but a depressing factor in business. They are, however, necessary. Politicians may fight over the placing of the responsibility for the severe taxes, meanwhile the load will fall upon business.

It is as well in circumstances such as business men at present find themselves governed by to consult the doctors. Professor Mavor, in Economics of Business, says:

The interest of a creditor country, that is to say, a country whose people have a large part of their capital invested abroad, must lie rather in the facilitation of imports than in impeding them, because the interest of its foreign investments and the repayment of capital invested abroad are insured bv these imports.

On the other hand, the interest of a dehtoi country, that is, a country which has bor rowed heavily, may lie in discouraging im portation, and in encouraging exportation the latter being the means by which it meet its foreign obligations. When a country h borrowing, however, it must import, althougi it may not do so from the country from whicl it borrows.

It may be wise for Canada, at this stage of her growth to discourage imports. Her great need, however, is more capital properly applied and this New rariff can only be procured in and Business, the form of imports. But we were getting it in doses too large for proper assimilation. Signs of indigestion and unhealthy conditions were obvious in large fortunes through speculation in land, flotations and extravagance in public administration. Those who pointed to these symptoms were forcefully discouraged and they were dubbed by press and public alike as pessimists. That is but natural. Good doctors, those honest with their patients, are less likely to be popular. The most successful, socially and materially are said to be those who soothe or kill by doing as the patient orders rather than compelling the patient to do as should be done according to the best practice. So it was with business in Canada. We liked and followed the doctors that pleased us rather than made us healthy. Business as a result suffered from an overdose of capital. We used it

for city building rather than for laying the foundations for producing more exchangeable wealth. A check was needed and Canada has obtained it. B.ut we still need capital for very many purposes, the chief of which is to get people on to the land. If we put up our gates against imports—they are up against capital. Business may have to reckon with this and in reconstructing itself will do well to keep a very close eye upon the way the gates are raised against our chief necessity from abroad—capital. We have very many factories employed What Our at the present time makFactories ing shells. It shows that

Can Make. the manufacturer can

turn his plant to account in making many things. In this respect he has an advantage over the farmer. The fact that so many could adapt their plant to the making of shells fortunately saved them from a period of stagnation. When the need of war material passes away many plants may find it advisable to look for a demand for commodities other than those they have been accustomed to supply. In the main, however, they can make most money by following the lines for which their plant was designed. Canada, for instance, has many millions of dollars invested in plants for turning out railway rolling stock and other equipment. If it has to be adapted to some other work it will mean loss. But Canada will still need cars and rolling stock—that is if she is to make reasonably good use of the vast amounts of capital now invested in the form of railways. If we can get these lines into full use they will be found to require many things. At present railway earnings are falling. They are even lagging behind the low figures of a year ago. This condition will be absolutely reversed if the present year’s crop turns out normal. At no time was there greater justification for the hope of a more than normal crop than at present. History furnishes no instance where high prices failed to stimulate production. The factory employed in car building may look forward therefore to orders in the fall and other factories will find that from making shells they can turn to and locate a demand for some commodity that will satisfy a want arising from increased production. Let it always be borne in mind that Canada is not What Manuyet made. In the northfacturers lands of Quebec and OnShould Not tario there are thousands Forget. of homes still to be erected

and for their coming land has to be cleared and served with rail or other roads. From year to year there must be progressive improvements. In the West along existing lines and new ones the great work of permanent home building has still to be done. Of shacks there are thousands but of homes only scores. The scores have to become thousands and in the change the forges will have to clang and the mills grind to turn out the necessary equipment. At no time has the inducement to go to the land been stronger than at the present moment. For the produce of the field there is for some years an unprecedentedly good prospect of

higher prices. Of cattle there is a world scarcity and this of itself will keep steady the price of cereals. A normal supply of cattle cannot be raised within five years and it will be two or three years before the European wheat-growing areas are back to normal production. Under the stimulus of high prices of the next few years there is every reason to expect that the people of Canada will give more attention to their land and its wealth and this will mean demands on the manufacturer. Meanwhile immigration will soon flow again to the country. That from the United States has not ceased as in the case of Europe. What the unhappy people there will do after the war it is difficult to say ; but what attraction there is in a good land over which the rude foot of an invader has not yet trodden!

Although the new taxation and the approximation to a crisis of the situation in Europe are for the moment depressing factors, and for some months will remain so, the harvest of the year has in it factors in the trend of business more potential than in any previous year. A normal grain crop in Canada should set business on its feet in a normal way despite the war and new taxes. This year, with increased attention to the work of production, the normal results should be double the product of last year. What would that mean to the Dominion?