Can you help me in Politics, please ?

Reviewed by Morris Altman

Gregory Marchildon has written an intriguing and fascinating financial history of Canada from the perspective of the wheeling and dealing of one of Canada's leading businessmen during one of the most tumultuous and trend-setting periods of its history. Marchildon provides us with a revisionist and well-documented account of the life and times of Max Aitken, later Lord Beaverbrook, during the era of Canada's wheat export boom, ofttimes referred to as the Laurier boom, after Sir Wilfred Laurier, who was Canada's Prime Minster from 1896 to 1911. It was during these years of dramatic growth and structural change that Max Aitken made his fortune before moving to London to begin a new life in 1910 at the age of 31 in politics and, eventually, as a newspaper baron. The crux of this important book is to "capture the basic essence of capital formation before the Great War" (p. xii) and, more specifically, to improve our understanding of the evolution of finance capitalism over the course of the Laurier Boom and Max Aitken's place in it (p. 7). These objectives are well met.

Marchildon's discussion and analysis of the economic endeavors of Max Aitken are always contextualized by a discussion of the state of the Canadian economy as well as by a useful discussion of the economic theory relevant to an understanding of investment banking and the economics of mergers and cartels, which played such an important role in Max Aitken's career. The story of Max Aitken, the man, as he quickly evolves from a lowly insurance agent to a financier by his mid-twenties is not forgotten, however. Aitken's fortune was a product of the economic context into which he was born and his uncanny ability to adopt and develop innovations in the financial and corporate sectors.

Marchildon argues that one of the significant changes experienced by the Canadian economy by the close of the nineteenth century was the newfound need of a growing number of entrepreneurs for access to larger pools of capital to finance their investments. This gave rise to investment banking and related activities and to the establishment in 1903 of the Royal Securities Corporation (RSC) in Halifax by John F. Stairs, one of the Maritimes' leading industrialists and financiers, who befriended Aitken in 1901. Stairs, who met an untimely death in 1904, opened the corridors of power and influence to the young Aitken, who, in turn, parleyed his pivotal role in the development of the RSC into working on the burgeoning business of utility development and reorganization in the Caribbean.

Aitken's job was to revitalize existing utilities and to raise the necessary financing for these efforts. To this end he eventually established the Montreal Engineering Corporation in 1907, the first of its kind in Canada, to internalize and coordinate the purchasing, consulting, and construction services provided to the utilities while RSC raised the capital necessary to transform these utilities by marketing corporate bonds both in Canada and in Britain. Transaction costs were thereby saved, giving RSC's utilities a competitive advantage over other utilities. During this time Aitken also expanded RSC in the Maritimes and into central Canada to internalize the profits accruing from the promoting, underwriting, and selling of bonds which would otherwise go to independent brokers. Aitken moved to Montreal from Halifax in 1907, as he aggressively sought out new challenges and opportunities for profit and independence from his Halifax associates. By this time he had succeeded in purchasing the then moribund Montreal Trust and Deposit Company after realizing considerable success in trust activities in Halifax. He led the reorganization of the Montreal Trust moving into non-trust activities and transforming this company into a leading financial player in Canada. He eventually sold it to the Royal Bank at a considerable profit.

The last chapter of Aitken's economic life in Canada centered on Canada's first major merger boom, which took place in the immediate pre-World War One period. Marchildon argues that the boom was triggered by the bull market of 1909 as well as by a fall in prices that followed from the new mass production technologies being put in place from the turn of the century which, in turn, caused a crisis of overproduction culminating in the short-lived industrial recession of 1908. Aitken was behind the largest, most spectacular, and most successful mergers of the period resulting in the formation of the Canada Cement Company, Canadian Car, and the Steel Corporation of Canada (STELCO). To contextualize his discussion of Aitken's role in the Canadian merger movement, Marchildon produces an important revision of Canadian merger statistics for the 1885-1918 period. Aitken's merger activities began with the consolidation of Canadian Portland cement producers. Since this was his first stab at this business it was quite ragged around the edges, generating considerable controversy and accusations of miscreance, which contributed considerably to Aitken's eventual emigration to London and to the popular view that Aitken was little more than a money-grubbing speculator. From Aitken's perspective, the long-term goal of his consolidations, which were horizontal in nature, was to facilitate increasing efficiencies and eventually reduce prices to the consumer. For this to be achieved, however, required corporations which had sufficient market power to keep prices from collapsing and thereby improving their chances of attracting outside investment capital required to produce the necessary mergers. Marchildon, in fact, argues that Aitken's profits from mergers were due to the value added which he contributed to the merger process and were therefore largely entrepreneurial in nature. Nevertheless, what is missing from this important story, as well as from the author's discussion of Aitken's involvement with utilities, is more evidence that Aitken's efforts were responsible for significant efficiencies and that these efficiencies were not simply collected as rents by the owners of these mega-corporations and utilities.

The impression one gets from this biography cum-financial history is the potential importance of an Aitken-type entrepreneur for economic development. Although Marchildon suggests similarities between former junk bond king Michael Milken and Max Aitken, it is clear from this book that Aitken did not get rich simply by selling high-risk bonds or securities. His wealth was also not a product of raping corporate assets to pay for the money borrowed to produce the mergers in the first instance. Marchildon's Max Aitken was, indeed, an entrepreneur who helped transform companies into more efficient enterprises, thereby contributing to the economic advancement of Canada. This portrait of Max Aitken stands in stark contrast with the proverbial myopic speculator of his times and ours who is interested in maximizing profits in the very short term with little regard for the long term viability of the establishments in which investments are made.

Morris Altman is professor and Head of the Department of Economics at the University of Saskatchewan. He has published in the areas of economic history and economic theory. His most recent publications include Human Agency and Material Welfare: Revisions in Microeconomics and their Implications for Public Policy (1996) and "Land Tenure, Ethnicity and the Condition of Agricultural Income and Productivity in Mid-Nineteenth Century Quebec," Agricultural History (1997, forthcoming).