The Great Depression in Canada - Essay Example

The Great Depression in Canada Table of Contents Table of Contents 2 Introduction 3 Historical Background 4 Discussion 6 Conclusion 9 Works Cited 10 Introduction The term ‘depression’ in economics lacks a formal definition. It is often referred to a period of crisis in finance and commerce. In this context, an economic crisis is defined as a period that is characterized with declining prices and output by more than 10 percent. The rate of unemployment also seems to increase during the period of economic depression. Based on these notions, in an old joke it has been stated that “a recession is when your neighbor loses his or her job; a depression is when you lose your job”1. One of the examples of a depression is often regarded to be the great depression witnessed by Canada. The period of depression was recorded to instigate during the summer of 1929 and extended till the spring of 1933. For the Canadian citizens, the depression period of the 1930s is still considered to be the most devastating decade of the century2. The major cause for this was the crash in the stock market, which is often considered to be the consequence of the wheat crop crash in Canada. With due consideration to the notion of a depression and its emergence in the Canadian economy, the main objective of this paper will be to understand the major causes of the economic turmoil and also to describe the aftermath of the depression. A brief description of the total scenario of Canada in the historical context of the great depression will be presented in this paper. Historical Background The great depression of Canada existed during the 1930s as an era of economic poverty. The reasons for this depression in Canada can be related with various economic factors such as economic dependency, poverty, and unemployment among others. The period of depression initially was recorded in the year 1929, when United States discontinued purchasing goods from the Canadian market. This resulted in lockouts in many of the Canadian industries and thus contributed to the financial crisis. A huge number of Canadians became jobless and homeless lacking the basic amenities required to lead a healthy life. Even after getting a job, the Canadians were often paid at extremely low rates, which were not enough to fulfill their basic needs. The remaining unemployed Canadians used to move across the country in search of jobs and thus increased the liabilities of the government through inbound migration trends3. In Canada, the financial crisis was first observed in 1928 after the wheat crop crash had emerged resulting in the crash of the Wall Street Stock Market that later took the form of the great depression. One of the major causes of the depression in Canada was the over-production and over-expansion in the industrial sectors. During the 1920s, almost every industry in Canada was expanding and many new industries came into existence. As a result of this, the factory owners generally used to pile up huge stocks of goods. Consequently, after the crash of the stock market, these owners panicked and in order to slow down the production they laid off a huge number of workers. This resulted in a huge unemployment problem within the economy, which fuelled up a financial crisis in Canada. Therefore, the sale also went down causing an economic misbalance4. Furthermore, the Canadian economy remained entirely dependent upon a few primary products such as wheat, minerals and fish. Accordingly, the economy could not bear the loss from financial crisis as the demand for these goods went down after the unemployment problem. The economy of Canada was also related closely with the economy of the United States. Hence, with the emergence of a crisis within the American economy, the economic conditions of Canada also deterioted by a considerable extent. All through the 1920s, credit purchase became more and more favored in Canada. The added interest payments with the principle amount made many families go under huge debts4. Another very popular trend in the Canadian market at that time was the credit buying of stocks. Due to this reason, the Canadians increasingly considered “buying on margin”, which means a person needed to invest only 10% of the total price of the stock which he wanted to purchase while the rest was loaned by the brokers at a very high rate of interest. The Canadians expected the stock prices to go up when they could sell the stocks at a higher price. However, the stock prices went dramatically down resulting in the stock owners’ panic which forced them to sell their stocks as soon as they could further inhibit the stock prices. These were the major problems which later resulted in the great depression4. Discussion In Canada, the decline in the economy began during the summer of 1929 and continued with this declining trend till the spring of 1933. During the initial phase of the great depression, the stock prices witnessed inflation, which was almost near to the breaking point. Ultimately, people began to realize that no return could be expected from stock buying. As a result everyone started to sell their shares in large quantities and as soon as possible. The chief economic personalities of that time tried to uphold the stock market by investing as much as they could; however, it seemed to have no positive outcomes and the stock market collapsed within a short span of time. Unemployment was also a major factor for the great depression to take place in Canada. As a result of the over production or over supply, the factories panicked and laid off a huge number of workers which lead to unemployment. When the rate of unemployment increased in the economy, there was a decline in the demand, which caused the great depression in Canada to grow deeper2. Another major factor for the great depression was the severe drought and other economic difficulties, which ruined the Canadian economy. Because of the fact that wheat was grown in huge amounts in Canada and was also imported from other countries, the supply of wheat substantially increased to surpass the actual demand and thus the Canadian farmers were left with huge quantities of wheat in stock. The Canadian farmers also witnessed a dreadful drought over an array of summer seasons in a row.. The ongoing challenges witnessed by the European economies also contributed in the severity of the great depression in Canada due to extensive trade linkages. However, the most important factor was the weakness of Great Britain after the Second World War to satisfy the needs and demands of the natives effectively. This weakness of Great Britain deepened the effect of the great depression in Canada because of the reason that Britain and US were among the major trading partners of Canada2. Only a few countries witnessed such the full effects of the great depression of 1930s and Canada was among them. It has been estimated that between the year 1929 and 1933, the gross national expenditure of Canada was reduced by 42% and in the later years, about 30% of the labor force of Canada was unemployed5. Reports further stated that after the great depression, at least 1 out of every 5 Canadians became dependent upon the relief for survival given by the government6. Moreover, Canada derived almost 33% of its gross national income from the export trades. The western provinces of Canada were observed to be almost completely dependent upon the export business and were among the major sufferers of the great depression of Canada. In Saskatchewan, the wheat crop crash resulted in the lowest price of wheat ever recorded in history. As a result of this, the total provincial income of Canada was oppressed by 90% within two years. This made almost 66% of the total rural population dependent on the government relief6. Whereas, the other western provinces could have been considered to be technically bankrupt from 1932 and onwards. However, the effect of the great depression was not the same among the people. It was distributed unequally between different classes. Although the wage rates in Canada declined throughout the 1930s, the price of commodities dropped even faster. As a result, the farmers and the small businessmen were forced to bear the adverse effects of the economic hardship7. Conclusion From the above discussion, it can be concluded that the main reason for the depression to take place in the Canadian economy was the crash of the stock market along with the wheat crop crash. Moreover, the over expansion of the Canadian industrial sectors also played an important role in deepening the effect of the great depression. The factory owners in order to bear the loss from the piled up stocks, laid off a huge number of employees giving rise to unemployment in the economy. This resulted in the financial crisis of the economy and compelled the commodity prices to go down steeply. Besides, the undiversified nature of the Canadian business sectors can also be considered as a cause for the great depression. Therefore, it is advisable that an economy should try to diversify and be flexible as much as possible rather than depending upon only a few business sectors with the intention to avoid depression. It can be inferred in this context that the consequences of depression should be studied continuously within an economy with due consideration to identify the occurrence of such an event in the initial stage and thus to take necessary resolutions accordingly. Works Cited Ascension Collegiate, 2006. “The Great Depression Comes to Canada”. “Causes of the Great Depression”. http://www.ascension.k12.nf.ca/curriculum/social/canhistory_1201/new_page_8.htm Horn, Michiel. The Great Depression of the 1930s in Canada. Ottawa: The Canadian Historical Association, 1984. Haines, Michael R. & Steckel, Richard Hall. A Population History of North America. Cambridge: Cambridge University Press, 2000. Knoop, Todd A. Recessions and Depressions: Understanding Business Cycles. California: ABC-CLIO. LLC, 2009. Peterson, Lois, No Date. “The Great Depression in Canada”. “The Great Depression was a period of economic hardship during the 1930s”. http://loispeterson.webs.com/Pages/The%20Great%20Depression%20handout.pdf The Globe, 2009. “The Great Depression in Canada”. “Worst Is Over Now, Future Is Glorious, Bennett Confident. Greatest Prosperity Ever Known Lies Ahead, Says Premier”. http://www.themontrealreview.com/great_depression.php Yes Net, No Date. “Great Depression of Canada”. “The Cause of the Depression”. http://www.yesnet.yk.ca/schools/projects/canadianhistory/depression/depression.html Read More