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4. Home Made Solutions and Foreign Panaceas
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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 → → 4. Home Made Solutions and Foreign Panaceas →→ A. World War II |
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Government Steps In
Contents |
By the middle of the decade of the 1930s, many governments started to lose faith that 'the market would correct itself.' A number of factors lay behind this major transition away from the traditional economic policy of "laissez faire".
Half a decade into the Great Depression, the economy simply was not righting itself as still close to one out of three workers was unable to find employment. The markets needed to be stimulated. British economist John Maynard Keynes introduced the new concept of 'deficit financing' in which governments could postpone debts in the future and thus spend their way out of depression. In 1933 American President Franklin Roosevelt introduced his revolutionary New Deal which addressed head-on some of the systemic causes that underlay the Great Depression.
The Bennett New Deal
Something had to be done, and done quickly about the worsening national economic state. After initially acting quickly upon taking office by raising tariffs and providing relief money to the provinces for unemployment, Prime Minister Bennett did little else. He sat back and waited, trusting in the economy to right itself. He could not leave behind the old high-tariff protectionist attitudes that were strangling recovery. The economy had been in trouble before but it had always righted itself. It would do so again. That was the popular belief shared by Bennett and many others, including Mackenzie King. However, things were not getting better; they were simply getting worse, with no end in sight. Bennett realized that he had do something drastic to salvage his political fortunes in the upcoming 1935 election. Adopting a page from United States President Franklin Roosevelt, Bennett tried to institute his own version of 'the New Deal.' In doing so, he appeared to be contradicting everything that he as a conservative capitalist had stood for.
Roosevelt had come to office in 1932 and announced in his famous Inaugural Address, "the only thing we have to fear is fear itself." In order to combat that fear, he launched an ambitious and innovative One Hundred Days, which called for "action, and action now." He targeted three areas - relief, recovery, and reform. His plan came to be known as the New Deal. Roosevelt got the United States working by funding massive public works projects. Farmers were paid to accept government quotas to limit production. Interest-free loans were made available. Bank deposits were ensured up to $5000 per person. Tariffs were reduced. The stock market was reformed through the creation of the Securities and Exchange Commission. In short, FDR's New Deal helped to save, reform, and renew America's economy.
Bennett was slowly converted to some of the leftist leaning policies of the New Deal, probably less out of conviction than out of pragmatism. Faced with a very low popularity rating as well as the gaining momentum of several new political parties, Bennett needed something that the electorate would respond to favourable. He surprised the country and even his own cabinet by introducing his version of the New Deal. On January 2, 1935, he began to copy another FDR innovation - 'the fireside chats' (informal radio speeches) that outlined his ideas for getting Canada out of Depression.
Radical Responses
Many people were dissatisfied with the traditional policies espoused by the Conservatives and the Liberals. They began looking elsewhere for more radical and innovative solutions. The smallest and most radical alternative was offered by the Communist Party. Founded in 1921 in Guelph, Ontario, it argued that there was something inherently and systematically wrong with the capitalist system. It was one based on greed and exploitation. The Communist Party wanted to abolish private ownership of business and industry, which they believed would herald a new age of equality for all and poverty for none.
Communist activities were closely monitored by the federal authorities as many suspected that they were fermenting a possible revolution. On August 11, 1931, the RCMP arrested founder Tim Buck and seven other Communist Party leaders under Section 98 of the Criminal Code of Canada with belonging to an organization that was plotting to overthrow the government by violent and illegal means. Their conviction and incarceration in Kingston penitentiary was to serve as a warning to others.
The Founding of the CCF
Not nearly as far to the left on the political spectrum, the Co-operative Commonwealth Federation (CCF), was a much more successful new party to emerge out of the depression. Shortly after the 1930 federal election, a "ginger group" of left wing MPs met with United Farmers of Alberta MP William Irvine in his Parliament Hill office to discuss forming a new political movement. They included:
- Agnes Macphail, militant farm spokesperson from Grey southeast in Ontario;
- Ted Garland, a Progressive Party veteran;
- Humphrey Mitchell, a trade unionist;
- A. A. Heaps, jailed for his support of the unionists in the Winnipeg General Strike;
- Angus MacInnis, a "Marxist Socialist"; and
- J. S. Woodsworth, Independent Labour Party MP since 1921, and a former Methodist minister also jailed in the Winnipeg General Strike
A year later, on July 19, 1933, the CCF approved its policy platform, the Regina Manifesto of the CCF, which called for radical measures to take Canada out of the Depression. These included unemployment and health insurance, state ownership of major industries and banks, public housing, farm price supports, and laws to protect farmers from creditors. "No CCF Government", said the Manifesto, "will rest content until it has eradicated capitalism and put into operation the full programme of socialized planning which will lead to the establishment in Canada of the Co-operative Commonwealth."
The CCF elected seven MPs its first election in 1935, and eight in 1940. With the backing of the Liberals, they won the York South by-election in February 1942, and prevented Conservative leader Arthur Meighen from returning to the House of Commons. In the 1945 election, they elected 28 CCF MPs, and won 15.6% of the popular vote.
The CCF fared better in provincial politics, becoming the official opposition in Ontario in 1943, and in 1944, forming the first socialist government in North America with Tommy Douglas as premier.
Mackenzie King's Liberal party responded to the CCF and the "the threat on the left" by adopting many new social and economic programs, including the Old Age Pension plan (backed by Woodsworth in 1927), unemployment-insurance (1940), the family allowances (1944), mortgage support, veterans benefits and federal assistance to health care.
During the Cold War, socialism was linked to communism, and the CCF declined in popularity. In 1956 they replaced the Regina Manifesto with a more moderate Winnipeg Declaration, and in 1961, joined forces with organized labour and the Canadian Labour Congress (CLC) to create the New Democratic Party (NDP).
Duplessis in Quebec
In Quebec, the depression hurt rural areas with declining prices and urban areas through unemployment. Added to the frustration was the fact that many of the businesses in the provinces were run by English-speaking Canadians or Americans. The Liberal government of Premier Taschereau continued to govern as it always had. Paul Gouin, a disgruntled Liberal, attempted to reform the party. The Premier refused to listen to Gouin and his supporters and they bolted the party. A new power was emerging.
In 1933, Maurice Duplessis had been elected leader of the Quebec Conservative Party. Recognizing that his party was weak, Duplessis decided to ally with Gouin and his faction. That marked the birth of the Union Nationale. They narrowly lost the 1935 provincial election on a campaign of higher minimum wages and a provincially owned hydro-electricity system. However, in the next year, 1936, the Union Nationale won a huge majority and became the government.
However, similar to Aberhart in Alberta, Duplessis in Quebec did not bring in the reforms he promised. Instead, he allowed the continued domination of English-speaking Canadians within the Quebec economy. No electricity companies were nationalized. He intimidated labour agitators, used the provincial police to maintain his grip on power, and made an alliance with the Roman Catholic Church. Increasingly, his regime became more and more corrupt.
Social Credit in Alberta
A right-wing alternative to the Conservatives and Liberals was the Social Credit Party founded by William "Bible Bill" Aberhart in Alberta, first elected August 22, 1935. Very much in the tradition of agrarian radicalism and protest, the Social Credit Party sought to assist farmers crushed by high debt and freight rates and the dust bowl conditions of the Prairies. They saw the main cause of the depression to be under-consumption. Farmers simply did not have enough disposal income to play their rightful role as domestic consumers. The solution was obvious to them - put more money into the economy. In 1936 they issued what they called "Prosperity Certificates", which the opposition derisively called "funny money."
Although not technically money, each certificate was intended to circulate with a value of one dollar. Every week the holder of a note had to affix a one-cent stamp to the back to maintain its validity. The intended effect was to increase the velocity of circulation and discourage hoarding. As the end of each interval approached, the note holders spent their prosperity certificates in order to avoid having to purchase and affix the stamps. The notes would be redeemed by the provincial treasurer after two years, by which time 104 stamps would have been attached, yielding the government a small profit on the issue.
The government put the prosperity certificates into circulation by paying them as part of the salaries of the provincial civil servants.
The experiment lasted for about one year before the newspapers spearheaded a campaign to boycott the notes. People did not like to affix the one-cent stamps, and the glue was so bad the stamps kept falling off. Of the 357,680 prosperity certificates issued, all but 19,639 were redeemed.
Aberhart approached the Conservatives and Liberals to adopt the policy on a national level, but he was turned down. Eventually, the idea was deemed unconstitutional by the Supreme Court. Nevertheless, a Social Credit dynasty would hold power in Alberta from 1935 until 1971.
The Founding of the Bank of Canada
For the first half century of its existence, like most countries at the time, Canada did not have a central bank. The government of the day adopted very much of a laissez-faire attitude and policy in terms of the nation’s banks, allowing each of the largest banks to even issue their own currency. It was believed that Canada, blessed with a highly stable banking system, had no need for a lender of last resort. Canadian banks, given their size and their charter status, did not experience the same seasonal liquidity problems, as did American banks.
Like much else, this belief was shattered by the economic and social dislocation experienced during ‘the dirty thirties.’ Many argued that Canadian banks exacerbated the negative effects of the Great Depression. Most dramatically, they pointed to the hundreds of instances of bank foreclosures on farm mortgages. Farmers joined manufacturers and other groups favouring a depreciating currency in calling for the creation of a Canadian central bank.
Prime Minister R. B. Bennett, the former millionaire Calgary industrialist, resorted to what was to become a typical Canadian strategy and created a Royal Commission in 1933 to investigate the issue of the creation of a central bank. To a large extent, given the membership of the Commission, its ultimate finding in favour of the creation of such a bank was almost a foregone conclusion. John E. Brownlee, then the Alberta Premier, was a Commission member. He supported the creation of a central bank as his constituency of western farmers demanded cheaper credit. From Britain, Lord Macmillan, who had been in charge of propaganda during World War One, was known to be strong advocate of a central bank in Canada. Gerald McGeer was one of Canada’s leading proponents of such an institution was also a Commission member.
After the Royal Commission tabled its report strongly recommending the creation of a central bank, the Canadian Parliament passed the Bank of Canada Act. The Bank began official operations on March 11, 1935 as a privately owned corporation in order to guarantee that it was neutral and non-partisan. Three years later, under Prime Minister Mackenzie King’s leadership, the bank was converted into a unique form of Crown corporation. The central bank was now fully owned by the federal government. The federal cabinet appointed the Governor of the Bank of Canada.
The Bank of Canada has played a vital role in the nation’s economic history. It brought stability and rationalization to the banking system at a time when both features were desperately needed. It injected a much-needed dose of confidence. Private banks were ordered to withdraw all their currency from circulation by 1949. It played a major role in financing the Canadian war effort between 1939 and 1945. Through its subsidiary, the Industrial Development Bank, it has stimulated investment and economic growth. The Bank of Canada’s regulation of interest rates and monetary supply has had a major impact on employment and overall economic health.
Relief Camps and the On-To-Ottawa Trek
By the mid 1930s, the conditions for the unemployed still remained grim. In order to forestall the possibility of agitation from young unemployed men, the federal government established relief camps. Under the control of the army, they were located in isolated areas. The men worked long days at 20 cents a day. Altogether about 170 000 men worked in these camps, many of whom could not receive provincial or municipal relief. The conditions were so dire that 1,500 relief camp workers in British Columbia went on strike in April of 1935, demanding better working and living conditions and a pay increase. Ottawa did not respond, so some of the leaders of the strike determined to take the strike to Ottawa.
On June 3, 1935, over 1,000 unemployed men, the Communist-led Relief Camp Workers Union of the Worker's Unity League commandeered railway freight cars in Vancouver, BC, and started the On-to-Ottawa-Trek. Led by Arthur "Slim" Evans (a former One Big Union organizer), their plan was to travel across the country, picking up disgruntled relief camp workers along the way, and present their demands to Prime Minister Bennett.
After picking up fellow protestors in Calgary, Medicine Hat, Swift Current and Moose Jaw, the contingent, now numbering over 2,000, reached Regina, Saskatchewan,where the railways refused to let them proceed.
Prime Minister R.B. Bennett offered to have 8 leaders of the protest travel to Ottawa to meet him on the condition the rest of the protesters stay in Regina, where they camped under the close watch of the RCMP at the Regina Exhibition Grounds. The Ottawa meeting became a shouting match, with Bennett attacking the group as radicals and Evans calling the Prime Minister a liar before the delegation was hustled out of Bennett's office.
On returning to Regina, the leaders organized large public rallies, which broke out into The Regina Riot on July 1, 1935. Bennett had little sympathy for the protesters and their Bolshevik sympathies, and ordered the Royal Canadian Mounted Police to force them to return to the relief camps. At 8 pm the RCMP moved in with clubs and tear gas to disperse the rioters. During the battle, one plain clothes policeman was killed, and one protestor later die in hospital of his injuries. Hundreds of local citizens and Trekkers were wounded in the fight.
When the riot was over, the government offered the protestors free transportation back to the camps, and handed control from the military over to the provinces. Many trekkers, disgusted by the state of affairs, volunteered for the Mackenzie-Papineau Battalion to fight for the Spanish Republic during the Spanish Civil War.
The 1935 Election
Increasing radicalism on the part of Canadians, seen with the creation of the Cooperative Commonwealth Federation on the left and the Social Credit on the right as well as On-To-Ottawa Trek protesting the conditions in the relief camps, convinced Prime Minister Bennett that something fundamental had to be introduced. Another political motive on his part was to pick up the lagging fortunes of his federal Conservative Party on the eve of the 1935 election.
Bennett's New Deal was a late and half-hearted imitation of Roosevelt's much more radical - and successful - New Deal. In a series of radio addresses beginning in January 1935, again imitating FDR's 'fireside chats,' Bennett sought to reassure the Canadian electorate as well as bolster his own sagging political fortunes. He announced a series of programs that promised unprecedented federal government spending and intervention into the economy.
Admitting the failures of the current system, Bennett brought a number of innovative bills to Parliament. He moved toward a more progressive tax system to distribute Canadian wealth more equitably, a minimum wage that offered relief for Canadians at the lower end of the income spectrum, a maximum work week/minimum hour statute, unemployment insurance to assist displaced workers, health and accident insurance plans, agricultural support programs to help the approximately one-third of Canadians who gained their livelihood from farming, a grain marketing board and a revised old-age pension program. The acts were:
- The Weekly Rest in Industrial Undertakings Act
- The Limitations of Hours of Work Act
- The Minimum Wages Act
- The National Products Marketing Act
- The Employment and Social Insurance Act
- Dominion Trade and Industry Commission Act
- Farmers Creditor's Arrangement Act
All of these reforms were revolutionary coming from a diehard conservative. But Bennett recognized something substantial - and immediate - had to be done - if not to rescue the economy, then to salvage his political fortunes.
The Liberals Return to Power
Bennett's last-minute conversion did not convince the voting public. They could not understand why his 'wait and see' approach had been obliterated by this imitation New Deal. The Liberals came out with an effective campaign slogan - "King or Chaos."
In the 18th general election of October 14, 1935, Mackenzie King defeated R. B. Bennett, winning 171 of 245 seats. Electoral analysis revealed that voters had deserted the Conservatives in droves, either opting to support King and the Liberals or one of the new parties. Social Credit won 17 seats, the CCF, 7, and the Reconstruction Party, one. The Conservatives won a mere 39 seats.
One of Mackenzie King's first acts as Prime Minister was to travel to Washington, DC, and sign a reciprocal trade deal with US President Franklin D. Roosevelt on November 16, 1935. The first trade treaty with the US since 1866 involved substantial concessions on 88 items by both countries, and a new quota system designed to ease the depression caused by high tariffs.
As for Bennett's programs, Supreme Court judges decided that the measures exceeded the federal government's power. In 1937, the Judicial Council of the Privy Council, agreeing with the provincial challenge that Bennett's proposal were out stepping the bounds of federal jurisdiction, declared six out of eight of Bennett's New Deal programs ultra vires, or unconstitutional, because they did not fall within Ottawa's powers under the BNA Act, or invaded the provincial field of property and civil rights.
The decision of the J.C.P.C. sparked discontent, and led to a demand that appeals to London be abolished. In the short run the decision of the Court prompted the new Mackenzie King government to form a Royal Commission (the Rowell-Sirois Commission) on Dominion-Provincial Relations.
The solution to the Great Depression lay not in the domestic arena, but rather would arrive via international concerns and ultimately, the outbreak of World War Two.
| Home Made Solutions - Gallery | Stories & Texts | Web Links | Student Activities | Student Projects |
| 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 → → 4. Home Made Solutions and Foreign Panaceas →→ A. World War II |
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