Author(s): C. A. Ashley
Source: The Canadian Journal of Economics and Political Science / Revue canadienne
d'Economique et de Science politique, Vol. 27, No. 1 (Feb., 1961), pp. 91-97
Published by: Wiley on behalf of Canadian Economics Association
Stable URL: http://www.jstor.org/stable/139400 .
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MAXIMIZATIONOF PROFIT*
C. A. ASHLEY
University of Toronto
THE assumption that, in business transactions, men try to maximize profits has
recently been widely questioned after a long and almost undisputed run.
*A revised version of a paper presented at the annual meeting of the Canadian Political
Science Association in Kingston, June 11, 1960.
Vol. XXVII, no. 1, Feb., 1961
5Robbins, The Theory of Economic Policy, 206. See also C. A. Ashley and J. E. Smyth,
CorporationFinance in Canada (Toronto, 1956).
6J. Dean, Managerial Economics (New York, 1956), 28. See also H. R. Bowen, Social
Responsibilities of the Businessman (New York, 1953), passim; and V. A. Demant, Religion
and the Decline of Capitalism (London, 1952), chap. VI.
7F. Machlup, "MarginalAnalysis and Empirical Research,"American Economic Review,
XXXVI, no. 4, Sept., 1946, 528.
8p. W. S. Andrews, ManufacturingBusiness (London, 1949), 4.
9B. S. Keirstead, Capital, Interest and Profits (New York, 1959), 58.
C. G. BALE
RoyalMilitaryCollege
IN the past few months tlhe Governor of the Bank of Canada has issued several
stern warnings about the dangers inherent in Canada's large current account
deficit.' He has emphasized the embarrassment which the servicing of the
large and growing external debt might present in the event of a recession or
a cessation in foreign lending, and has called for a more moderate approach
to economic development tailored to the amount of real saving which the
Canadian economy can generate.
The Governor's charge that Canada is living beyond her means was rejected
by Mr. Gordon Churchill, then the Minister of Trade and Commerce,2 but
Mr. Coyne found some support for his position in the budget address presented
to the House of Commons by Mr. D. M. Fleming, the Minister of Finance.
Mr. Fleming contended that there was no cause for alarm since Canada's
dependence on foreign capital should decline in the future. He did, however,
state that past capital inflows could create problems in the event of a deteriora-
tion in economic activity and called upon Canadians to practise thrift in order
to make Canada more financially self-reliant.3
The present note is not concerned with the weighty problems that allegedly
inhere in Canada's present balance of payments position; it undertakes only
the more modest task of analysing one particular aspect of Canada's capital
inflow. Both Mr. Coyne and Mr. Fleming have warned those who borrow
abroad of the danger of exchange rate movements. Mr. Coyne stated that:
Those who borrowvU.S. dollars now, at the present rate of exchange, put themselves
at the hazard of future movements of the rate in the other direction. Foreign cur-
rency converted now into Canadiandollars at a discount may have to be paid back,
and annual interest for many years may have to be paid, when there is a premium
on foreign currency.This is a riskwhich borrowersshould weigh against the apparent
saving in interestrates throughborrowingabroad.4
'See esp. J. E. Coyne, "Living Within Our Means," a speech delivered to the Canadian
Club of Winnipeg, January 18, 1960; and Bank of Canada, Annual Report of the Governor
to the Minister of Finance, 1959, 9.
2House of Commons Debates (unrevised), March 21, 1960, p. 2281.
3Ibid., March 31, 1960, p. 2672.
4Bank of Canada, Annual Report of the Governorto the Minister of Finance, 1956, 20.
Vol. XXVII, no. 1, Feb., 1961