The Great Depression ...

01/17/06

The Great Depression Comes to Canada

Introduction: The prosperity of the 1920's came to a halt on Oct. 29, 1929, this was the day the stock market crashed (this refers to the day when stock prices had such a dramatic decline that the value of many companies became worthless). Though the stock market crash did not cause the Great Depression it signaled the start of the Great Depression.

I. The Business Cycle:

- Economic conditions constantly change, in other words there are good time and bad times, economists call these upswings and down swings the business cycle. There are four basic stages to the cycle:

- Prosperity

- Recession

- Trough, Depression

- Recovery

II. The Great Crash:

- The day the stock market crashed is called Black Tuesday.

- During the 1920's many people dreamed of getting rich playing the stock market. The method seemed simple enough:

- buy plenty of stocks at a low price then sell them when their price is high

Ex: 5000 shares of a company whose stock value is .50 costs $2,500.00 when the stock increases in value for example to 2.00 your original investment is now valued at 10,000. If you sell you make $7,500.00.

- The only problem with this plan is that it requires knowledge, skill and good luck.

III. Causes of the Great Depression:

1. Over-Production/ over-Expansion

- During the 1920's almost every industry was expanding. Large amounts of profits and investments resulted in the expansion of existing factories or construction of new ones. As a result huge supplies of food, minerals, radios, cars. ... remained stock piled. [Soon factory owners panicked and slowed down production by laying off workers. Workers and their families had even less money to spend therefore sales slowed down even more.]

- Industrialists forgot the basic economic rule: only make as many items as you can sell. Wages simply were not high enough to buy all the products made.

2. Canada’s Dependence on a few Primary Products:

- Canada’s economy depended on a few basic products (staples) such as wheat, fish, minerals, and pulp and paper.

- As long as world demand for these remained high, Canada would prosper.

-When the depression hit countries around the world, demand for Canada’s products fell. Fish in the Maritimes and wheat in the West were especially hard hit.

- Argentina and Australia were producing wheat in large quantities the resulting surplus drove prices down. At the same time terrible droughts on the prairies destroyed crops. Farmers could not pay mortgages. Industries such as flour mills, railways, also slowed down without the production of wheat.

3. Canada’s dependence on the U.S.:

- Canada’s economy is closely linked to the U.S. as learned in an earlier chapter. When the American economy got sick, Canada suffered. No longer did Americans need to buy our fish, lumber, wheat, minerals and pulp and paper.

4. High Tariffs

- In the 1920's many European countries recovering from W.W. I. needed our goods however because of their war dept. They often could not afford our goods.

- At the same time many other countries put high tariffs on goods coming into their country to protect home industries. Thus trade between nations began to slow down.

5. Too Much Credit Buying:

- Throughout the 1920's credit buying became more and more popular. With added interest payments many families got themselves hopelessly into debt. If the wage owner became sick or was laid off it was impossible to keep up payments.

6. Credit Buying of Stocks:

- Many people gambled on the stock market in the 1920's. People began "buying on margin". This meant that you only needed 10% of the money you invested, the broker loaned you the rest at a high interest rate. The idea was that as soon as your stocks went up in value, you could sell them then pay back your broker and keep the profits. Unfortunately, stocks do not always go up, in fact they sometimes go down, this is what happened in October 1929.

- When stock prices dropped, people panicked and sold their shares as a result prices fell even lower. Most stocks nosedived more than 50%. Many people were wiped out.

- The Great Depression had begun!

This site was last updated 12/17/01