Did Quebec experience economic growth (per capita) during the first decades of the 19th century? That question has been often debated in Quebec. In a recent paper co-authored with Mathieu Bédard, I argue that given the pronounced price deflation of the era and the increase in the money supply (faster than population growth), historians should discard entirely the possibility of negative growth. From this, we believe that historians should be able to assess likely results and attempt to construct estimates of living standards using either wage series and conjectural income estimates (à la Easterlin, Gallman, Lindert and Williamson).
Generally, the historical literature presents the period from 1817 to 1851 in Lower Canada (modern day Quebec) as one of negative economic growth. This period also coincides with the rise of free banking in the colony. We study the effects of free banking on economic growth using theoretical and empirical validations. Using the Equation of Exchange, we propose that given the increase in the stock of money and the reduction in the general price level, there must have been a positive rate of growth of income per capita during the period. Our theoretical discussion should conclusively end any debate over whether or not Lower Canada enjoyed a positive rate of economic growth. The only question remaining is why it was slower than that of the United States and the rest of Canada.