THE CAUSES OF THE GREAT DEPRESSION IN CANADA The great depression of 1929-39 was the worst economic disaster that has befallen canada in the last century. It is not the only economic downturn but it is certainly the one that had the most impact on the most people. Notice people riding the rails as an example of unemployed me, denied relief/welfare who rode on top of trains and sometimes beneath them in a vain search for work. What do these pictures tell you about life during the 1930s?

Were demand or supply issues most important? What caused the great depression? (consider underlying and immediate causes…) Were demand or supply issues most important?

Business cycle Note the four main headings and copy them down. Prosperity= defined as economic good times. The 1920s were considered prosperous- of course not for all- and the thirities were times of depression . What did it look like?

Unemployment in the Great Depression How bad was it? 25% unemployed and made worse because men were breadwinners and many women did not work once married. Some got jobs again but at much less pay than men.

PER CAPITA INCOME BY PROVINCE How bad was it? Note sask. Note avg income decline was 50% . Point out dust bowl as part of the problem.

Trade decline during the Canadian Depression The amount of goods and services produced in a society 33% of gross national income came from trade. Canadian economy especially vulnerable because it was dependent on export of raw materials. , Canada was particularly affected by the collapse in world trade. The 4 western provinces, which depended almost exclusively on primary-product exports, were the most affected. In Saskatchewan, plagued by crop failures and the lowest price for wheat in recorded history, total provincial income plummeted by 90% within 2 years, forcing 66% of the rural population onto relief. The other western provinces were technically bankrupt from 1932 onwards. Although Ontario and Québec experienced heavy unemployment, they were less severely afflicted because of their more diversified industrial economies, which produced for the protected domestic market. The Maritimes had entered into severe economic decline in the 1920s and had less distance to fall.

DECLINE IN GROSS DOMESTIC PRODUCT IN CANADA FROM 1928-1938 By 1933 the annual GNP had dropped 40% from pre crash levels.

WHAT IS THE RIPPLE EFFECT? Why does the economy move through these cycles. You need an understanding of the ripple effect. Because everything is connect when a sector of the economy goes down it is like a pebble in the water so that an individual's reduction in spending reduces the incomes of others and their ability to spend

Why does the ripple-effect impact the economy? Because all parts of the economy are interconnected a citizen wears two hats. One he/she is a consumer who purchases the goods and services Two, the consumer is also a worker who helps to provide those services If one sector of the economy is no longer able to fulfill its role as consumers other sectors are affected- the mine lays people off so the barber does not have as many hair cuts to provide

What is demand? What consumers need and want If demand for a product goes down then the workers are laid off Since the economy is integrated this can lead to a downturn in the economy

What is supply? All the goods and services produced by workers/companies for consumers When companies cannot sell their goods they lay off workers and they cannot fulfill their roles as consumers

DEMAND ISSUES: Natural Resources Economy depended on sale of natural resources to other countries i.e. wheat, fish, paper, coal, wood, etc Post WWI recovery meant demand did not continue Farmers represented 40% of all consumers in Canada The net farm income fell from $417 million in 1929 to $109 million in 1933.

DEMAND ISSUES: Lack of Income Not as many factory jobs in the Maritimes as Ontario Wheat farmers did well until 1928, but other farmers did not Buying on credit—Canadians went into debt Buying on margin—buying stock on credit—yikes! Use a sheet of paper with the number 10$ and ask them to buy 100 pieces @ 10. putting down only 10% or 100$ . Pass paper three times generating profit and the drop the bomb that the paper is now worth just over a dollar. How much is he on the hook for given that he only put down 10%. It was said by the Federal Department of Labor that a family needed between $1200 and $1500 a year to maintain the "minimum standard of decency." At that time, 60% of men and 82% of women made less than $1000 a year.

DEMAND ISSUES: LOSS OF INTERNATIONAL MARKETS Businesses over-produced—led to huge stockpiles Tariffs=taxes on imports Government raised tariffs to protect Canadian businesses—other countries did the same 40% of all produced was traded to the U.S. 40% of all trade went to usa. And it was bigger than second trading partner great britain… tariffs are tax on imports….. When canada raised rated Caused equal reaction from trading partners. Damaged trade.

SUPPLY ISSUES: OVER EXPANSION OF FARM LAND FARMERS WERE OVERLY OPTIMISTIC ABOUT THE FUTURE PURCHASED EXTRA LAND TO RAISE ADDITIONAL REVENUE WHEN THE BOTTOM FELL OUT OF THE WHEAT MARKET THEY WERE UNABLE TO MEET PAYMENTS. THEY COULD NOT ACT AS CONSUMERS

SUPPLY ISSUE: OVERPRODUCTION OF GOODS COMPANIES PRODUCED TOO MUCH AND STOCKPILED THEIR GOODS DEMAND WENT DOWN SO GOODS WERE NOT NEEDED LED TO WORKERS(CONSUMERS) BEING FIRED CANADA PRODUCED 200,000 CARS MORE THAN THEY NEEDED. STOCKPILING OCCURRED. THIS PIC IS HENRY FORDS PLANT IN WINDSOR….

SUPPLY ISSUE: OVER-DEPENDENCE ON NATURAL RESOURCES For example: newspaper trade was over 146 million dollars in 1930 and by 1936 it was a little over 85 million RAW MATERIALS SUCH AS FISH, WHEAT, LUMBER AND PULP AND PAPER MADE UP MOST OF CANADA’S EXPORTS-TOO MANY EGGS IN ONE BASKET!!! WE WERE NOT A DIVERSE ECONOMY 33% OF THE GROSS NATIONAL INCOME WAS DEPENDENT UPON REVENUE FROM NATURAL RESOURCES WITHOUT FOREIGNERS (PRIMARILY THE U.S.A.) CONSUMING OUR NATURAL PRODUCTS OUR ECONOMY SUFFERED. 40%

Underlying causes=supply & demand issues What were the immediate causes?

Drought! 1929=droughts & plagues of locusts Canadian West became a “dust bowl” Drought lasted 10 years! At the same time, Australia, Russia, and Argentina had huge wheat harvests—drove price of wheat down (more supply) Wheat bushel = $1.29 in 1928 =.34 cents in 1932

Impact was so vast and what was the solution?

Stock Market Crash Investors suddenly realized their shares were overpriced—lots of people tried to sell them all at once 16 419 030 shares traded at half their value Remember that many people had bought “on margin” Not everyone invested, but all heard horror stories—lead to a downward spiral Future investment in the stock market hurt—companies could no longer expand

http://www.youtube.com/watch?v=1tmI867fAYU

Remember People bought on credit and on margin… Companies had over spent… Farmers had over produced… People and companies could not make their payments Companies had to lay people off, which left less money circulating People lost cars, houses, and, well, everything

Adam Smith vs. John Maynard Keynes John maynard keynes as a solution?