The Great Depression and the Business Cycle

• The Great Depression in the early 1930s was not caused by the stock market crash of 1929, but the crash was a symptom of it.

The Business Cycle

• Economic conditions are constantly changing, with good times when the economy is on the upswing and bad times when it declines.
• Economics uses the Business Cycle to chart these upswings and downswings.

1920s- Prosperity Cycle

• Sales, wages, prices, and production were high
• Business profits were high and failures were low
• Demand for goods was high (sellers' market)
• Labour unrest was high due to many strikes
• Unemployment was low
• The general mood was optimistic

Recession

• Sales, wages, prices and production declined
• Business profits decreased and failures increased
• Demand for goods declined (buyers' market)
• Labour unrest remained high with many strikes
• Unemployment increased
• General mood was uneasy

Depression or Trough

• Sales, wages, price and production were low
• Business profits decreased and failures increased
• Demand for goods was low
• Labour unrest was low with few strikes
• Unemployment was very high
• General mood was low

Recovery

• Sales, wages, price and production were rising
• Business profits increased and failures decreased
• Demand for goods increased
• Labor unrest was low with few strikes
• Unemployment decreased
• General mood was uneasy, but hopeful

Black Tuesday

• The stock market crash occurred in October 1929.
• It was one of the most dramatic events leading to the Depression.
• Many people played the stock market in the 1920s, dreaming of getting rich quickly.
• Many who invested in the stock market lost everything in the crash.

Causes of the Great Depression

• The causes were: over-production and over-expansion, Canada’s dependence on a few primary products, Canada’s dependence on the United States, high tariffs choking off international trade, too much credit buying, and too much credit buying of stocks.

Over-Production and Over-Expansion

• Agriculture and industry had high levels of production in the 1920s.
• Many industries were expanding and large amounts of profits were spent on building new factories.
• Huge amounts of food, newsprint, minerals, and manufactured goods were produced and stockpiled.
• Automobile centers like Windsor and Oshawa manufactured 400,000 cars in 1930.
• Canadians already owned 1 million cars and in the best year ever, had only purchased 260,000 cars due to over-production.
• Industries forgot a basic economics lesson; only produce as many items as you can sell.
• Wages in the 1920s were not high enough for people to buy all products from factories.

Canada’s Dependence on a Few Primary Products

• Canada’s most important exports included wheat, fish, minerals, pulp, and paper.
• As long as world demand was strong, Canada would prosper.
• Regions that depended on one primary product found themselves in deep economic trouble during the Depression.
• The Maritimes, dependent on fish, and the West, geared toward wheat production, suffered.
• In the late 1920s, Canada faced competition from other wheat-growing countries like Australia and Argentina, causing the price of wheat to fall due to market surplus.
• Western farmers faced droughts in the summer of 1929, 1931, and 1933-1937, leading to crop failure without rainfall.
• Secondary industries, such as flour mills, suffered from the production slowdown.
• Railways and flour mills lost business due to the lack of wheat to ship.
• Farmers' problems caused a chain reaction in many parts.

Canada’s Dependence on the United States

• In the 1920s, Canada's economy was closely tied to that of the United States.
• 65% of Canada’s imports were from the Americans.
• 40% of Canada’s exports were sent to the United States.
• The United States was Canada's most important trading partner.
• It replaced Britain as the largest buyer of Canadian products and the most important supplier of investment funds for Canadian industries.
• Banks closed, industries collapsed, and people were out of work as factories shut down during the depression in the United States.
• Americans no longer needed to buy Canadian lumber, paper, wheat, and minerals.

High Tariffs Choked off International Trade

• Europe was recovering from war in the 1920s and needed surplus manufactured goods from the United States and Canada.
• European countries were heavily in debt from the war and could not afford to buy the needed goods.
• Many countries adopted protective tariffs to protect their home industries from foreign competition.
• High tariffs placed by country X on the goods of country Y led that country to place high tariffs in return.
• Trade slowed between nations around the world.
• Surplus goods in one country were kept out of another due to high tariffs, choking off international trade despite the need.

Too Much Credit Buying

• Canadians were encouraged by advertising to "buy now, pay later" throughout the 1920s.
• Many families were in deep debt due to credit buying.
• Keeping up with payments was not possible if the wage earner became sick or was laid off.
• The seller had the right to repossess if payments were missed.
• Many people lost everything as the Depression worsened.

Too Much Credit Buying of Stocks

• The stock market seemed like an easy way to get rich quickly in the 1920s.
• People from all walks of life gambled on the stock market.
• Stocks could be bought on credit like a washing machine or car, only needing 10% down with the broker loaning the rest at a high interest rate.
• Only $100 cash was needed to buy $1000 worth of stocks.
• Profits were made by selling the stocks after they went up in value, paying back the broker and pocketing them.
• "Buying on margin" was risky.
• The inability to pay back loans became an issue if stocks didn't rise.
• In 1929, stocks began to drop, causing panic and many decided to sell and get out of the market.
• Prices fell even lower as more stocks were dumped.
• In a few hours on October 29th, 1929, the value of most stocks on the Toronto and Montreal stock exchanges nosedived by more than 50%.
• Shareholders lost millions.
• Big and small investors were wiped out in a few hours.
• The Great Depression had begun.