Notes on the Great Depression and Its Causes

The Great Depression Overview

• Definition of Depression vs Recession
  • Recession: A short-term economic decline characterized by a decrease in economic activity.
    • Indicators include:
    • Declines in GDP
    • Decreased spending/purchases
    • Increased unemployment
  • Depression: A long-term economic downturn; a severe and prolonged period of negative economic growth.
    • Defined technically as 12 consecutive months of negative GDP growth.

The Economic Cycle

• Stages of Economic Cycle:
  1. Prosperity
  2. Recession
  3. Depression
  4. Recovery

Details of Each Stage:

• Prosperity:

  • Low unemployment
  • High production & profits
  • Increased consumer spending

• Recession:

  • Slumping sales and profits
  • Job cuts and increased unemployment
  • Business bankruptcies

• Depression:

  • Very low sales, heightened unemployment (e.g., up to 27%)
  • Business closures & significant drops in wages

• Recovery:

  • Gradual increase in jobs and production
  • Rise in demand and consumer spending
  • Business expansions may occur

Results of the Great Depression in Canada

• Major financial losses:
  • 16 companies in Montreal and Toronto lost $300 million.
  • Mass unemployment and widespread foreclosures on homes and vehicles.
  • Canadians unable to meet debt obligations, leading to significant hardship.

Causes of the Depression

• Caused by a combination of various factors:
  • Economic collapse due to interconnected issues rather than a single cause.
  • Major contributors include:
  • Poor economic understanding & human greed
  • Psychological factors affecting investor behavior

Immediate Causes:

• Stock Market Crash (October 29, 1929 - Black Tuesday)
• **Liquidity Problems **
• Bank Failures
• Cyclic Employment Relationship

Systemic Causes:

• Over confident Speculation: Long-term optimistic behavior leading to investment bubbles.
• Excessive Leverage: Over-reliance on borrowed money.
• Falling Demand for Natural Resources:
  • Decreased need for exports like minerals and forest products in a slowing US economy.
• Price Drops for Farm Products: Wheat prices dropped from $2.00 to $0.35, impacting farmers' incomes.
• Tariff Pressures from the US: Import tariffs that raised costs for Canadian products.
• Drought Conditions in Prairies: Agricultural failures exacerbated economic woes.

The Stock Market Crash

• Speculation bubble leading to inflated stock prices which culminated in a crash as confidence eroded following the rapid increase in stock prices.

Liquidity Issues:

• Money Loss: As market capital vanished, cash flow decreased drastically.
• Lack of financial resources in banks and among companies hindered investment recovery.

Other Contributing Factors

• Bank Failures:

  • Massive withdrawals by the public leading to insolvency of banks.
  • Resulted in loss of personal savings and further economic instability.

• Cyclic Unemployment Dynamics: Present a feedback loop where each economic decline leads to further dismissals and additional cutbacks.

• Falling Demand for Natural Resources:

  • Decreased exports drastically by approximately 25%.

Social Responses to the Depression

• Riding the Rails: Unemployed people traveled to seek work opportunities across regions.
• On-to-Ottawa Trek: Protests against the conditions in relief camps protesting low wages and poor conditions.
• Drought in the Prairies: Led to significant agricultural devastation, compounding economic issues.

Notable Events

• Dionne Quintuplets: Their birth brought significant media attention and economic activity; the government profited from their publicity.

Summary of the 1930's in Canada

• A period marked by economic hardship, societal struggles, yet significant historical events framed the decade.