3. The Great Depression and the Dirty Thirties

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E. Maturing Culture and Identity →→ 1. Strikes and Labour Disputes 1918-1920 → 2. Canada in the Roaring Twenties → 3. The Great Depression and the Dirty Thirties →
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The Great Depression - Causes & Concerns

Canada had evolved into a mass, consumer society by the 1920s. Manufacturers were turning out consumer durables and new labour-saving devices that were being gobbled up by anxious consumers. The newly emerging advertising industry promoted mass consumption. New and improved transportation networks linked producer with consumer. Foreign investment flooded into Canada as the United States replaced Britain as the chief source of capital. The stock market appeared to be ever rising. Unbridled optimism was the order of the day.

However, the prosperity was anything but secure, and anything equally distributed. There was an over-reliance on resource industries. Government policy to combat the depression, when it hit, proved to be ineffective and in some cases, counter-productive. The Great Depression would last for ten years beginning in 1929 and it would effect Canada and all countries of the world arguably more than any other man-made event. At its height, in 1933, millions were unable to find work sending the unemployment rate to an unheard height of close to 30%. Factories shut down, as there were no consumer dollars to buy up all the goods that were being warehoused. Thousands of farmers, over-extended on credit, lost their farms. Trade collapsed in the face of mounting tariffs. Prairie farmers suffered even more as a wicked drought savaged their land for more than half a dozen years.

The Health of the Economy

An important fact to point out when examining the causes of the Great Depression was that the stock market crash did NOT cause the depression. The crash was merely a symptom of severe underlying economic problems. A nation's stock market is much like a thermometer is to weather. It indicates the relative health of the economy at any given time. And the sad story was that the Canadian economy - and indeed the world economy - was in poor shape well before October 29, 1929, so-called 'Black Tuesday.' Certainly the buying mania, fueled by a system of 'buying on credit' was the most dramatic symbol of economic sickness. However, it was not the cause.

The Floor of the Toronto Stock Exchange

Well before the Crash, there were indicators of serious economic problems. Well back in the 1920s, there had been a recession in the opening year of the decade. Hundreds of small businesses had gone under and several banks teetered on the brink of bankruptcy. Indeed, one bank, the Home Bank, with over 70 branches, did fail. However, economic recovery soon came and something of a buying frenzy began.

One underlying economic problem was that wages and demand were outpaced by production and supply. Manufacturers, in their frenzy for greater profits, simply produced more goods than what could reasonably be purchased. (Henry Ford had offered industrialists the wisdom that they should only produce what they could reasonably expect to sell.) Manufacturers could postpone the day of reckoning by stockpiling and warehousing surplus goods. However, at some point, after layoffs and downsizing had proved ineffective, they would simply have to shut down production.

Economists can argue the over-production/under-consumption debate, almost endlessly. However, it is really two sides of the same coin. The net effect is the same. Whether the root cause is that there is an insufficiency of disposable income or whether manufacturers produce too many goods, the final story is the same. It is a death-knell for the economy, for it begins to turn the economy into a negative cycle. The prosperity cycle of the 1920s (production expansion-increase in demand for goods and services-demand for labour increases-wages rise-market demand increases-investment increases-production expansion) now was reversed. Production decreased which in turn lead to layoffs and unemployment, which in turn meant that there was less buying power in the economy, which in turn lead to a decline in market demand, which in turn lead to a decline in investment, which further eroded production.

Globe and Mail Headline Announcing the Crash

Black Tuesday on Wall Street

'Black Tuesday' was merely the visible and dramatic symbol of the economic malaise. On that day, almost 16.5 million shares were sold as panicked investors attempted to get pennies on stocks that had been worth fortunes before. Shares lost half their value, or over $9 billion. In a single day! There was a sudden realization that all those rising stocks were illusionary. Rather, they had all become tremendously over-priced. Investors all tried to sell at once. The simple laws of supply and demand took over. As the prices plummeted, fear and panic rose. Many investors lost their life savings. People jumped out of office windows.

The Scene on Wall Street During the 1929 Crash

The underlying causes of the depression were there - if only people had have been able to see them. The unabashed optimism was not supported by economic fundamentals. People simply were swept up in the heady times and believed the predictions that things would endlessly get better and better. Paper profits were seen as the real thing. Factories churned out more and more products, in the belief that the economic prosperity would continue forever. But, any sensible person must have realized that it could never last forever. There were already serious economic problems.

Even two years prior to the stock market crash, there were serious economic concerns. The 'big three' industries - automobile, housing, and steel - had all started to decline. Not only were thousands thrown out of jobs in those industries, but perhaps even more critically, thousands more in 'spin-off' (related) industries met a similar fate.

Canada's Resource Based Economy

Another problem was that the Canadian economy lacked diversification. There was an over-reliance on resource-based industries. Most critically, about one-third of Canadians still derived their income from farming, with wheat production being the most important. So when international wheat markets were good and there were bumper Canadian crops, things were humming. However, when things turned, the entire economy suffered. Wheat prices began to decline sharply. Immediately after World War One, a bushel of wheat fetched $2.45 on the world market. Ten years later, that price had fallen to $1.29 a bushel. Four years later in 1932, it had plummeted to 34 cents. That was a disaster for the Prairie farmers, hundreds of whom lost their farms to the combination of the dustbowls that blew away their valuable topsoil and greedy banks that foreclosed on their mortgages. Perhaps even more disastrous was that farmers now could no longer act as the vibrant consumer for all those manufactured products coming out of Canadian factories.

Easy Money and Credit

US Stock Prices 1927-33

There were further underlying causes for the coming of the depression. In the aftermath of World War One, companies in Canada and in the world needed money to convert to peace-time production. They raised it by going into debt, either by borrowing from banks, selling bonds, or offering shares on the stock market. Eager investors, optimistic about the future, gobbled up the offered shares, which in turn drove up share prices to unrealistic levels. The fundamentals of the companies did not warrant their share prices. However, that did not deter investors, for as long as share prices kept rising, they could still make a profit.

This fragile situation was greatly exacerbated by a process know as 'buying on margin.' Credit buying was introduced in the 1920s as Canadians wanted to participate in the heady lifestyle that included new appliances, cars, and entertainment. This credit buying mania was even extended to the stock market as investors bought shares on credit. Buying on margin meant that an investor could put down as little as ten percent of the cost of the stock. The balance was borrowed from the broker. Interest had to be paid on the outstanding balance as well as collateral put up, usually in the form of homes or cars, to back up the loan.

All was well just so long as stock prices continued to increase, as everyone believed they would. When the investor saw his shares double in price, for example, he would simply sell them, pay of his loan to his broker, and pocket a tidy profit. Buying on margin created an artificially heavy demand for shares and drove up share prices. However, once the bubble burst and suddenly sellers greatly out-numbered buyers, the result was as tragic as it was inevitable. Margin buyers would receive a call from their brokers demanding repayment of the loan. They struggled to find any buyer, even offering shares that had been worth dozens of dollars for a few pennies.

The High Tariff Trap

A further cause for the coming of the depression lay in the misguided attempt by governments to raise tariff barriers. Canada's economy was an export-based one as about one-third of the Gross National Product came from exports. The initial thinking may have been sound in the most immediate and direct way. However, it was a disaster for the international trading community and for the long run. Thinking that by erecting tariff walls domestic jobs would be protected, different national governments competed with one another to raise ever higher and high tariffs. The policy may have protected a few domestic jobs. However, on balance, it significantly drove up the overall unemployment rate as all those workers in industries dependent on foreign trade were now exceedingly vulnerable. By 1932, international trade had declined by over 50% and the resulting rise in unemployment was inevitable.

The Canadian economy was vulnerable in another way. The Canadian economy was directly linked to health of the American economy and was dependent on exports to the United States. When trade began to dry up, the Canadian economy went into a tailspin. American parent companies, responding to trying economic times, responded by cutting back or closing down Canadian branches.

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The 1930 Election

The Single Mens Unemployed Association parading to Bathurst Street United Church, Toronto, 1930s

The 1930 election was fought between Mackenzie King and the Liberals and R. B. Bennett and the Conservatives. Bennett believed that he could use tariffs to "blast a way for Canadian products into world markets. He believed that higher tariffs would protect Canadian goods from unfair competition by other countries, especially the United States.

Prior to the election, in the House of Commons, King had made a major blunder by saying that he would not give a "five-cent piece" to assist Conservative provincial governments with their "alleged unemployment" problem. That insensitive remark cost King dearly as Bennett's Conservatives won the 1930 election with 137 seats, including an unheard of 24 in Quebec.

Bennett's timing could not have been worse as his administration governed Canada during the five worst years of the depression. However, his own policies did little to improve the situation. Despite campaigning as something of a radical, once in office, Bennett adopted a fairly traditional approach. As a conservative, he disliked spending public monies on huge public relief projects. Nevertheless, he did pass an initial $20 million emergency aid law to provide provinces for relief and public works.

Wedded to the idea that a balanced budget was the key to get Canada out of the depression, Bennett was slow to adopt the new deficit financing ideas of economist John Maynard Keynes. Responding to the U.S. decision to raise tariffs to their highest levels in history, Bennett followed suit by in turn raising Canadian tariffs. That policy was disastrous as Canadian exports plummeted from $1.4 billion in 1929 to $475 million in 1933. By 1933, 826 000 people out of a population of 10 million were unemployed.

Prairie Family and their "Bennett Buggy"

The conditions of 'the dirty thirties' had never been experienced before. Not once in the decade did the unemployment rate drop below 12%. It peaked in 1933, at 26.6%. Those figures did not include the thousands of out-of-work farmers and fishers, who were not counted in government statistics. Nor did it include the thousands who had simply given looking for work. At that particular time there was no such thing as unemployment insurance or welfare. People lost their homes, were thrown on the streets, lived in shantytowns, rode the rails, and survived as best they could. 'Bennett buggies' were the derisive term used to describe a horse-drawn vehicle because the owner could not afford to buy gas.

All people and all areas suffered. However, the suffering was not equally shared. Unskilled workers suffered more than skilled workers. Young people found it virtually impossible to enter the labour market. Single-industry towns such as Windsor, Sudbury, and Oshawa - all in Ontario - suffered more than areas that were more diversified. Similarly, more diversified farming areas, such as the mixed farms of eastern and central Canada fared better than those solely reliant on a single crop, such as wheat on the Prairies. Because it was deemed socially unacceptable for a woman to hold a job instead of a man, working women suffered significantly.

The Dust Bowl Hits Saskatchewan

The Dirty Thirties on the Prairies

During the 1920s, Saskatchewan was one of the most prosperous farming areas in the world. By the 1930s, it was one of the most devastated. The cruel combination of the economic depression and the ravages of nature turned much of the province into a wasteland. Drought conditions first appeared in 1928 but grew steadily worse. In 1928, precipitation was half what had been the previous year.

The Dust Bowl Days

The year 1929 was no better and as the soil continued to bake, most of the vital subsoil moisture disappeared, especially in the southwestern dry belt. The drought continued for the next eight years and as it did, especially when it was accompanied by strong winds, much valuable topsoil similarly disappeared. The dust bowl had replaced the western breadbasket. About one quarter of all of Canada's arable land was affected by drought. Plagues of grasshoppers and plant rust only worsened an already grim situation.

Other provinces and regions also suffered but none so badly as the Prairies. In the Maritimes, the British and American market for fish dried up. The finances of the Dominion of Newfoundland collapsed, and the country had to give up its independent self-governing Dominion status and suspend its constitution, reverting to British colonial status.

Escapist Entertainment

Guy Lombardo (Canada Post)

Entertainment of the 1930s, not surprisingly, tended to be escapist. Radio broadcasts of music, drama, and comedy became the staple fare for most Canadian families. Canadians tuned in by the millions to listen to Foster Hewitt's hockey broadcasts. "Hello hockey fans in Canada and Newfoundland....' was the signature opening line.

Canada's "Happy Gang" and the jokes of American comedians such as Jack Benny and George Burns offered a different kind of escape. In music, it was the era of the 'big bands' such as Guy Lombardo and his Royal Canadians, Benny Goodman, and Jimmy Dorsey. Some of the song titles of the time reflected the a kind of black humour - "Brother, Can You Spare a Dime?", "I Can't Give You Anything But Love", and "We're in the Money".

Motion pictures provided a different kind of escape. It was the age of Disney as people flocked to movie theatres to watch "Snow White and the Seven Dwarfs". Horror films like "King Kong", starring Fay Wray from Alberta, momentarily took people's minds off their own hard lives.

By mid-decade it was becoming all too apparent that the traditional gradualist approaches and policies were not working. In fact, in many cases, they were proving to be counter-productive. The signs of chaos were all too evident: close to a million Canadians out of work, dust bowls ravaging the Prairies, hundreds of factory gates padlocked, the rise of discrimination against foreigners, the discontent in the relief camps, the violence of the Regina Riots, an estimated 20% of Canadians dependent on government relief for survival, two-thirds of Saskatchewan's rural population on welfare, a 50% decline in per capita income between 1928 and 1933, and the presence of hundreds of soup kitchens and bread lines.