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So You Think You’ve Got It Bad? The Great Depression
The 6 Main Causes of the Great Depression 1. Over Production & Over Expansion 2. Canada’s Dependence on a Few Primary 3. 4. 5. 6. Products Canada’s Dependence on the United States High Tariffs Choked Off International Trade Too Much Credit Too Much Buying of Stocks on Credit
Cause #1 Over Production & Over Expansion n Automobile Industry n 1930 – 400 000 cars produced but only 260 000 cars had been ever sold in the best year of sales (1926) n Products in Over-Production in the 1920’s n n Newsprint Radios Clothing Cars n These vast stocks often remained unsold in warehouses. n Consequently, factory owners began to panic, slow down their production and lay off workers. n “Basic Lesson in Economics” (investors forgot this one!) n ONLY PRODUCE WHAT YOU CAN SELL!
Cause #2 Canada’s Dependence on a Few Primary Products n Canada’s Economy depended on the following primary products: n n Wheat Fish Minerals Pulp & paper n While in demand, Canada’s economy flourished by exporting large amounts of these staple goods. n As the 1920 s progressed however, an international surplus developed and the global market shrank.
Cause #2 Canada’s Dependence on a Few Primary Products n Making matters worse, Western farmers faced terrible droughts in the summers of 1929, 1931 and 1933 -1937. Without adequate rainfall, crops failed. n When the drought occurred and the price of wheat fell = an inability to export wheat to Europe n Secondary industries such as flour mills were directly affected by the plight of farmers, while Eastern Canadian farm equipment manufacturers were suddenly unable to sell their goods. n The Maritime provinces were greatly affected as they depended on the “fishing” industry – n Therefore, the demand for Canada’s product fell as other countries went in the Depression as well
Cause #3 Canada’s Dependence on the United States n Canada’s imports were primarily from the USA (in the 20’s) n 65% of all our imports from USA n American markets were the largest buyer of Canadian products, easily making the United States Canada’s most important trading partner. n When the American economy collapsed, Americans stopped purchasing Canadian lumber, wheat, paper and minerals.
Cause #4 High Tariffs Choked Off International Trade n European countries were still actively recovering economically from WWI n Canada was affected as well as safeguarded by Protective tariffs n Tariffs protected our home industries – however, they choked off international trade as countries outside of Canada were not willing to pay the high tariffs on the products they wanted to export into Canada. n As a result, companies stockpiled surpluses of goods but were unable to easily sell them abroad.
Cause #5 Too Much Credit n Families were getting themselves into debt as they were encouraged to “BUY NOW, PAY LATER”. (Does this ring a bell? ) n By 1929, credit buying was a well established custom n Advances in technology and convenience products created a consumer culture than many could not afford, but nevertheless participated in by using credit. n If people fell behind in their payments – the goods would be repossessed!
Cause #6 Too Much Buying of Stocks on Credit Buying on Margin = Buying stocks on margin did not require a large outlay of cash, all that was needed was a small cash down payment, usually about 10 percent of the overall value. A stock broker loaned the rest of the money at a high interest rate. The idea was that as soon as stocks went up in value, they could be sold at a price capable of paying back the loan while also earning a large profit. When the value of stocks started to drop in October 1929, people panicked. In a few hours on October 29, 1929, the value of most stocks on the Toronto and Montreal stock exchanges fell by more than 50 percent. Shareholders lost millions.
The IMMEDIATE Causes of The Great Depression 1. Drought in the West 2. The Stock Market Crash of 1929
IMMEDIATE Cause #1 The Drought n in 1929, a drought hit the Prairies, lasting 10 years n land became very dry, turned to dust = “Dust Bowl” n in addition to a lack of rain, there was also over farming, n n high temperatures, and plagues (locusts and grasshoppers!) other nations had huge, plentiful harvests (eg. Russia) this caused price of wheat to go down from $1. 29/bushel in 1928 to $0. 34/ bushel in 1932 some prairie farmers found it more cost-effective to burn their crops than to harvest them and bring them to market tremendous disparity (range of economic fortune) became the norm
IMMEDIATE Cause #2 The Stock Market Crash of 1929 When ? n The stock market crash of 1929 spanned a 4 day period this is historically referred to as Black Thursday, Black Friday, Black Monday and Black Tuesday. n The crash began on Black Thursday (October 24 th, 1929) n Black Tuesday (October 29 th, 1929), by definition is considered the beginning of The Great Depression n The initial stock sell-off began on Thursday & Friday however, it wasn’t until Monday & Tuesday that the catastrophic damage was done
The Stock Market Crash of 1929 When? – continued… n Over the weekend, the press had time to cover what was happening on Wall Street and more people were able to see the events unfold. n The availability of this information caused people to panic & begin selling off their stocks over the course of Black Monday & Tuesday. n After Black Tuesday, the world saw a continued decline in the market that finally reached its lowest point on July 8 th, 1932 n Recovery took 20 years during which time the world became embroiled in another World War
The Stock Market Crash of 1929 “The prosperity of the 1920’s had been largely artificial, based on easy credit, high hopes, and the need to supply Europe with exports until it had recovered from WWI. ”
The Stock Market Crash of 1929 n many people throughout the 1920’s bought shares in n n companies (or units of ownership as a means of making a profit) many thousands of these individuals had to borrow money in order to back their bet that stock prices would be rising (BULL vs. BEAR!) many used this system of “buying on margin/credit” with only 10% to be paid while the remaining 90% could be borrowed all of this led to huge demand for shares which drove their prices higher share prices were OVERinflated, and people soon realized it was time to sell them (Buy Low, Sell High!)
The Stock Market Crash of 1929 n on October 29 th, 1929, thousands of shareholders tried to sell, panic set in, share prices dropped to ridiculous lows n many people lost all of their money= Depression sets in…
The Stock Market Crash of 1929 Big reasons why this all took place: n EASY CREDIT n Lack of financial regulations n Vulnerable Canadian Economy n Emphasis on Exports n Shrinking demand for Canadian Exports n Trade Protectionism and Tariffs
The Stock Market Crash of 1929 n For the majority of Canadians, the Depression meant great wage reductions and/or unemployment n On top of all that, there were no real “Social Safety Nets” to protect them
Responding to the Great Depression n Before the 1930 s, municipalities and churches were in charge of dealing with the poor, the sick and the unemployed n During the Depression, municipal welfare payments were called the dole or pogey n Going on the dole was considered a disgrace
The Federal Government’s Response to the Great Depression n Prime Minister Mac. Kenzie King felt that relief was not the federal government’s responsibility “As far as giving moneys out of the federal treasury to any Tory government in this country for these alleged unemployment purposes…I would not give them a five-cent piece” Canadians disagreed- King lost the 1930 election to R. B. Bennett (Conservative)
R. B. Bennett
Bennett’s Response to the Great Depression n Bennett was no more in favour of relief than Mackenzie King had been. n Nevertheless, within his first five weeks in office he grudgingly passed the Unemployment Relief Act to provide assistance to the unemployed. n In the end, Bennett spent over tem times more on relief than had been spent in the entire previous decade…. but he continued to argue that unemployment relief was a provincial or municipal responsibility rather than a federal one.
Bennett’s Response to the Great Depression n Bennett was in power from 1930 until 1935 n He raised tariffs to record levels but this did not “blast Canada back into world markets” as he had promised n During his term he gave money to the provinces for relief but this did little to help most people n After his death it was discovered that Bennett sent some of his own money to needy Canadians
Bennett’s Response to the Great Depression n Bennett also set up relief camps where unemployed men did work projects Conditions in the camps were poor and wages were only 20¢ a day n In 1935 many relief camp workers left their jobs to participate in the “On-To-Ottawa Trek” n The trekkers rode trains across the country planning to confront Bennett in Ottawa to ask for better wages and working conditions n They were stopped in Regina by the RCMP and riots were the result n
Bennett’s Response to the Great Depression n People soon realized that Bennett could not do much more to solve the problems of the Depression than Mackenzie King had done. n Their anger was evident in the terms they used. Bennett Barnyard = Deserted Prairie Farm n Bennett Blanket = Newspaper n Bennett Coffee = Roasted Wheat n Eggs Bennett = Boiled Chestnuts n Bennett Buggy = Automobile pulled by a horse because the owner couldn’t afford to repair or buy gas n
On-to-Ottawa Trek n Driven to desperation by poor conditions, the inhabitants of the work camps eventually rebelled n In 1935, thousands of men left the camps in the interior of BC and congregated in Vancouver n Their union, the Relief Camp Workers, decided to take their complaints to Ottawa n Thus began a protest that became known as the On-to-Ottawa Trek
On-to-Ottawa Trek n The Trekkers “rode the rails” across the Prairies n When they reached Regina, the RCMP confined them in a local stadium, allowing only the leaders to proceed to Ottawa n The leaders hoped that Bennett would be sympathetic to their cause but he attacked the leaders as radicals and trouble-makers n The order was then given to clear all the Trekkers out of the Regina stadium
On-to-Ottawa Trek n Regina Riot - A 2 hour battle between the Trekkers and the RCMP ensued = one man killed, many injured and 130 Trekkers were arrested n The gvt was convinced that the Trekkers were agitators and communists. n So great was the fear of social unrest that communism was outlawed in 1931 – right to protest was forgotten
Bennett’s New Deal n The 1935 election was fast approaching so Bennett came out with his “New Deal” – his plan for dealing with the Depression n New Deal = package of reforms that Bennett promised to introduce if he were re-elected. n New Deal included: Health & Unemployment insurance n A maximum work week n Financial assistance to farmers n Creation of an Economic Council of Canada n
Bennett’s New Deal n The Liberal under Mackenzie King attacked the New Deal as a sham to gain votes n Canadians voted for King’s liberals because they had lost faith in the Bennett n Liberals concluded that the provinces and the municipalities did not have the tax resources to deal with the Depression = the gvt would have to offer them help