The Causes of the Great Depression

“The Great Depression” • October 24th, 1929 • The stock market crashed in the USA and brought Canada’s economy down with it. • Started what is known as “The Great Depression”

This was the worst economic downturn the country had ever seen • Unemployment reached an average of 32% in Canadian cities, 50% in Windsor, and up to 60% in Maritime Provinces from Black Tuesday until the start of 1932. Men line around the block outside the doors of a Toronto Soup Kitchen

Further Understanding: The Business Cycle • Economic Conditions in a capitalist economy are always changing • This means the economy will fluctuate over the years. There will be a period of years where the economy is up, and a period of years where the economy is down

4 stages of the Business Cycle • 1) Prosperity- 1920’s is a great example • 2) Recession- A slow decline of the economy- Unemployment rises as companies begin to overproduce goods with no one to sell to.

4 stages of the Business Cycle • 3) Depression- Worst Case Scenario- Recession continues and spreads-Rampant Unemployment • 4) Recovery- Rise and increase of the economy- Production has been slowed in recession or depression and as a result the demand for goods rises again. Businesses increase production and the economy starts to rise again

Black Tuesday: Oct. 24, 1929 • The prosperity of the roaring twenties allowed for many to play the stock market. Money was not an issue for most so many were not phased by the possible risks of playing stocks. Too many people “buying on margin” (getting loans to buy shares) •When stock prices went down, people couldn’t pay back their loans •This caused people to SELL shares •Selling causes more selling, and more, and PANIC!

Causes of the Depression in Canada 1) Over- Production and Over expansion • Agriculture and Industry reached high levels of production during the 1920’s • Industries continued to expand factories and began producing too many goods.

For example in 1930 Oshawa and Windsor plants produced 400,000 cars. Canadians already owned over 1 million cars at the time. Lesson: You should only produce as much as you can sell. (supply & demand)

2) Canada’s dependence on a few primary products • Canada’s economy relied heavily on a few staple products including: wheat, fish, minerals, and pulp and paper. • After the depression set in the demand for these products was low as the average family income plummeted. The Maritimes and the Prairies were hit the hardest as fish and wheat were what those two areas depended on heavily Lesson: Selling many different kinds of products is best. (diversify)

Causes of the Depression in Canada 3) Canada’s Dependence on the United States • By the end of the 1920’s Canada bought 65% of US imports • The USA also became Canada’s biggest trading partner. Canada’s economy was linked so tightly to the USA that it was hit very hard as well. Lesson: “When the U.S. sneezed, the rest of the world got pneumonia.” 1931 McLaughin-Buick Model 67 four-door sedan

Causes of the Depression in Canada 4) High Tariffs cut off International Trade • Countries began instilling high tariffs to protect their own economy from foreign competition. These were known as protective tariffs. • The trading of surplus goods came to a halt because the tariffs were to high and international trade was almost effectively cut off world wide. This meant not many countries were helping each other out in time of need.

Causes of the Depression in Canada 5) Too Much Credit Buying • The 1920’s bred a “pay now and buy later” mentality. • A family could buy a car for $500 and put a small down payment up front followed by $12 a month for 6 years • This lead to Major debt

6) Too Much Credit Buying of Stocks • Any person could buy a $1000 dollar stock for $100 in the 1920’s. The idea was to pay off the debt when you sell the stock for a high price. • Both of these causes caused major debt among the citizens of Canada when the stock market crashed Lesson: Don’t spend more than you make.

What is a stock? At some point, just about every company needs to raise money. In each case, they have two choices: Borrow the money (bonds) or Raise it from investors by selling them a stake (issuing shares of stock) in the company The public owns part of the company and benefits from the growth of the company Profits are paid out in the form of dividends

All of these factors contributed to the onset of the Great Depression and in particular the effects that were felt by the people at the time. The stock market crash was the immediate event that pushed the economy over the edge and into the Depression.

Activity • Put yourself in the shoes of the person in the picture on the next slide. From what you have just learned about the causes of the Great Depression in Canada write a fictional story about how the person ended up in such a poor financial situation. (About a page to a page and a half long). • When the time is up for writing, partner up with someone and share your stories.