The Great Depression in Canada

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Table of Contents

Introduction
Root Causes of the Great Depression
Government Intervention
Works Cited
Footnotes

Introduction

The Great Depression in Canada lasted from 1929 to 1939. Like many fledgling industrial nations at that time which included its neighbor the United States and Great Britain, this was a period marked by both financial and social problems. Unemployment attained a high of 27% when the depression was at its hardest in 1933. Families were plunged into massive debt with the wiping out of their assets.

The hardest-hit sectors of the economy were those that employed a “big proportion of the population and this included farming, mining and logging.” (Paul Alexander, 1996)¹The corporate world was also massively scarred with “corporate profits that had amounted to $396 million in 1929 being totally erased and instead turned to losses of $86 million by the year 1933.” (Berton, 2001, p 252) ²The result was the closure of many businesses due to the continued decline of the prices of commodities which made this business venture unprofitable even though these massively reduced prices were still beyond the reach of an unemployed and broke public. (Berton, 2001, p 252)

Root Causes of the Great Depression

Before the onset of the Great Depression from the years 1919-1929, Canada had the fastest growing economy amongst the developing nations and the only blip to this record was the slight recession they suffered during the 1^st World War.

The country was quite prosperous especially in the 1920s where its standards of living showed marked improvement. The country was certainly on the right path towards matching its close cousin the United States economics. An important point worth noting is that the onset of the great depression and the subsequent recession that followed did not start suddenly but it was a slow process that was fueled by the prevailing economic conditions and certain economic policy decisions that were undertaken by the Canadian Government like raising of export tariffs.

Even though the Canadian public was hit hard by the depression, the effects cannot be compared to the events that were unfolding in the United States. Over 9000 banks collapsed in America taking with them the life savings of millions of citizens. In Canada, it is not surprising that there were no reported cases of banks filing for bankruptcy due to their stringent banking regulations which were more conservative than their counterparts. Even though the unemployment rate (in Canada) was still high, those who were still employed could earn real wages; the only catch is the number of hours they could work per week was greatly reduced. (Watkins, 1993, p 101)³

Wheat Crop Failure

It is a well-known notion that the “Great Depression was triggered by the Wall Street Market Crash”(Watkins, 1993, p 103) but some analysts beg to differ for the case of Canada adding that the failure of the wheat crop harvest of 1928 also played a part. With the subsequent crash of the wheat crop, many citizens were rendered jobless and the supply of money and even food was at critically low levels.

The standards of living took a beating with the minimum income required to support an average family “declining from $1200-$1500 to less than $1000 a year.”(Lambert, 2006, p 123⁴) The failure of the wheat crop can be attributed to the drought that afflicted the prairies for several years and the dust storms that followed which made it almost impossible for farmers to grow large quantities to match the market demand.

The bare amount of wheat that survived these harsh conditions could not produce maximum yield due to the lack of rainfall. The farmers were eventually caught up in financial turmoil since the credit they hard borrowed from the banks to purchase seeds and farm machinery could not be paid off due to the poor harvest. Most of them filed for bankruptcy and the few that survived these harsh times had to pay lesser wages or lay off the farm laborers to stay afloat.

Lack of Market

The boom in economic growth from 1919-1929 can be attributed to a flourishing export market that had close ties with its commonwealth counterparts Britain and Australia, and also trade with its close ally the United States. This triggered a rapid and almost uncontrolled expansion of Canadian industries and companies. The demand for their products was there and the “over production and over expansion was facilitated by credit lending institutions like banks.”(Shlaes, 2008, 371) ⁵This however changed when Wall Street crashed in 1929. Suddenly, the demand for goods and services disappeared and these companies were faced with a huge debt that they could not serve because of a lack of market for their goods and services. Massive layoffs ensued and the prices of these commodities tumbled. (Shlaes, 2008, 371)

Furthermore, the lack of market for goods resulted in a decrease in demand for natural resources which put the country in a fix since it “depended too much on a few primary products” (Shlaes, 2008, 371) to define its export market which accounted for “25% of Canadian Gross National Product.”(Shlaes, 2008, 371) Most of these products were destined for the United States and when the depression hit the United States, the demand for their products reduced, and Canada was sucked into the ensuing depression. Two key points, therefore, contributed to the economic depression that hit Canada. The over-dependency on the American market for its products was the beginning of their downfall and the miscalculation of Canadian industries and companies of a guaranteed future demand for their products only exacerbated an already precarious economic recession.

Black Tuesday

Falling commodity prices in the United States that can be faulted on oversupply in the market contributed to a massive drop in share prices in the United States which culminated in a full-blown stock market crash on October 1929, a day referred to as Black Tuesday. It is worth noting that we look at the events that preceded Black Tuesday. Like Canada, America had also been enjoying an economic boom that was being driven by a strong manufacturing sector.

This had created a huge and prosperous middle-class population that had borrowed heavily from the very flexible banks and most of this wealth was invested in the stock exchange; which had been enjoying a rally like never before. Trouble started when the banks realized they had lent too much and the number of defaulters was also increasing. Sensing trouble, the banks started recalling their loans and some of them were tied up in the stock exchange. Millions of borrowers cashed in their shares in an attempt to pay off their loans which led to a massive drop in trade volume and share prices. (Bliss et al, 1971) ⁶

Falling share prices sent the entire economic system into panic mode which led to a reduction in public spending because most people were inclined to save whatever little they had. The lack of demand for commodities led to falling prices which hit the industries and companies hard. With the economic situation looking uncertain, most citizens started withdrawing their savings from the banks and this coupled with a large number of loan defaulters contributed to the collapse of the banking system.

Sensing that people were hoarding cash instead of spending it, the “Federal Reserve reduced money supply by one-third,”( HoarCopp, 1969, 45) ⁷which later proved to be an error since the slight recession that had been triggered by the stock market crash turned into a full-blown depression. Canada had close economic ties with the US and the shockwaves from the collapsing stock market reverberated to Canada. The Canadians had also borrowed too much to buy stocks and when the Black Tuesday crash occurred the defaulters tried everything possible to pay off the borrowed credit. They sold their personal belongings and those who were still short had their processions reprocessed.

Government Intervention

The country’s gross national product had fallen from $6.1 billion in 1929 to $3.5 billion in 1933 and the value of industrial production had reduced by a half. Therefore, a timely intervention was necessary if there was any hope of reversing this trend. The Mackenzie administration that was charge before and during the onset of the depression seemed unable to grasp the veracity of the economic situation. They thought the depression was simply a blip that would pass with time. They denied federal aid to the provinces that were in economic turmoil but instead offered only “moderate relief efforts.” They were voted out in the 1930 elections and R B Bennet’s Conservative Party came into power. (Bliss et al, 1971)

Bennet showed a bit more initiative than his predecessor and he instituted make “work programs plus welfare and other assistance programs” (Horn, 1972, p 128)⁸ to aid the unemployed population. “Unemployed single men worked in camps that had been established in British Columbia.”(Horn, 1972, p 128) However, the massive spending created a massive deficit in the federal budget which the administration tried to counter by cutting back on spending. This only exacerbated the situation. “Government employees were rendered jobless and the public works projects were cancelled.” (Bliss et al, 1971)

Great Britain introduced trade-protectionism which was designed to favor its commonwealth members Australia and Canada that were massively in debt. Both of these countries were given preference when it came to exporting their commodities to the British market. Furthermore, the volume of trade being imported by Britain from Canada doubled from 1929 to 1939 and this helped to jumpstart the Canadian industries that were reeling from the recession. This enabled Canada to start paying off its huge public debt.

The Bennett government tried to institute minimum wage programs through the Industrial Standards Act but the plan massively failed. Their failure led to the ousting of his administration and McKenzie King’s Liberals returned to power in 1935. During his tenure, “the worst of the depression was over” (Bliss et al, 1971) but McKenzie’s government established relief programs like the “National Housing Act and National Employment Commission. He also established Trans-Canada Airlines which laid the foundation for Air Canada in 1937.” (Paul Alexander, 1996) It wasn’t until the outbreak of the 2^nd World War in 1939 which fuelled an arms race and a subsequent mass production of arms and machinery that pushed the Canadian economy back to the pre-1929 levels.

Works Cited

Berton Pierre, “The Great Depression: 1929-1939”, Anchor Canada, 2001, pp 252-279

Bliss Michael Bliss and Grayson L M, The Wretched of Canada: Letters to R.B. Bennett 1930 –1935, University of Toronto Press, 1971.

HoarCopp Victor, The Great Depression: Essays and Memoirs from Canada and the United States, Clark Publishing, Toronto 1969, pp 45-48.

Horn Michiel, The Dirty Thirties: Canadians in the Great Depression, Copp, Clark Publishing, Toronto 1972. pp 125-128.

Lambert Ann Barbara, Rusty Nails, and Ration Books: Memories of the Great Depression and WWII 1929-1945, Trafford Publishing, 2006, pp 123-129 (Primary Source)

Paul Alexander Gusmorino III, 13^th May 1996, “Main Causes of the Great Depression”. Web.

PBS: The American Experience “Surviving the Dust Bowl”. Web.

Shlaes Amity, The Forgotten Man: A New History of the Great Depression, Harper Perennial, 2008, pp 369-375.

Watkins, T.H. The Great Depression: America in the 1930s. Toronto: Little, Brown & Company, Ltd., 1993, pp 101-109.

Wecter, Dixon. A History of American Life: The Age of the Great Depression, 1929-1941, Toronto: Collier-Macmillan Canada Ltd.

Footnotes

Paul Alexander Gusmorino III, 13^th May 1996, “Main Causes of the Great Depression”.
Berton Pierre, “The Great Depression: 1929-1939”, Anchor Canada. 2001, pp 252-279.
Watkins, T.H. The Great Depression: America in the 1930s. Toronto: Little, Brown & Company, Ltd., 1993, pp 101-109.
Lambert Ann Barbara, Rusty Nails, and Ration Books: Memories of the Great Depression and WWII 1929-1945, Trafford Publishing, 2006, pp 123-129 (Primary Source).
Shlaes Amity, The Forgotten Man: A New History of the Great Depression, Harper Perennial, 2008, pp 369-375 (primary source).
Bliss Michael Bliss and Grayson L M, The Wretched of Canada: Letters to R.B. Bennett 1930 – 1935, University of Toronto Press, 1971.
HoarCopp Victor, The Great Depression: Essays and Memoirs from Canada and the United States, Clark Publishing, Toronto 1969, pp 45-48.
Horn Michiel, The Dirty Thirties: Canadians in the Great Depression, Copp, Clark Publishing, Toronto 1972. pp 125-128.

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