THE CRASH
The "good life" in Canada came to an abrupt end in the late twenties. This
happened for many complex reasons, some of which were to do with countries
outside of Canada. For example,
.
o
.
U.S. companies realized that they had produced too many goods,
so they slowed down production. The U.S. raised its tariffs on
imported goods to the highest levels ever. This was done to
encourage Americans to buy up their own surplus goods rather
than foreign ones. Thus Canada's sales to the U.S. sagged.
Britain and other European countries also increased tariffs on
foreign goods to protect their own products.
By 1929 competition from Argentina, Australia, an the U.S.S.R.
glutted (supplied in excess) the world wheat market. Canada
could no longer sell its wheat in huge quantities. This had a ripple
effect since other facets of the economy experienced slow downs
(e.9. flour mills, railways, equipment manufacturing).
Through out the 1920's Canadians were encouraged to purchase their goods
and services by credit, "Buy now, Pay Later". Companies also did the same,
they had taken large loans to expand their businesses. By 1929, it had become
common practice for many Canadians to purchase by credit.
As companies' stock values continued to rise on the various stock exchanges,
more and more people invested in the stock market. They believed that share
values would always rise.
As unemployment began to rise (near the end ot the decade) people found they
could not pay for goods they had bought on credit during the boom. Companies
continued to grow while sales continued to fall.
Stock values plunged. Throughout North America people lost their confidence in
growth dnd prosperity. A panic set in, people began to sell off their stocks which
led to, "E!ggt@dgy" - the stock market crash of October Z*,1929. The
stock exchange was flooded with sell-orders for stocks that had become
worthless, as there were soon no buyers.
With the collapse of the stock market, the economic system toppled. The effects
would reach into every part of Canadian society in what became known as the
.,@'';theruinofthehopesandplansofawho|egeneration.
The 1920s
Economic problems
I
The Great Crash
rJ
But the whole economic system was
based on the confidence ofthe
r9
investor. People invested money in
t't
stocks and shares and made money
lz
when the companies made profits.
Sales started to decline in the late
rgzos. In r9z9 investors became
nervous. Some started to sell their
shares, then many more followed.
On z9 October (,Black Tuesday)
more tJran 16 million shares were
sold on the New york Stock Ex_
ll
r0
1
6
change in Wall Street. Nervousness
had rumed to panic. Shares became
6
worthless. Some banks had to close.
Many businessmen were ruined in
the Wall Street crash. The dream
perpetual growth in wealth had
rurned into the nightrnare of the
Depression.
8'o
1
5
of
+
7
z
Unemployment
I
r.5
As firms went bankrupt men
were
.1
a,
thrown out ofwork. And not just in
the towns: rhere were difficuities
in
rural areas as farmers were unable
to get loans from banks.
Unemploy_
ment rose alarmingly from r93o
to
1933, as you can see
from the
Figtre z Unemployment in
ryjos (in miilions)
A
queue of unanployed
t
aorken, ryjz
graph
L:IT
While Hoover was president
it"rl.*
Ggrq-$) millions ofmen became
idle, bitter and destitute.
Many even
to begging as the song
I-d
srother,
you
Can
Spare a Dime?'
showed (a dime is a
ten-cent coin):
Once I built a railroad, made it run,
tr'lade it race against time.
Oncelbuiltarailroad.
Now it's doneBrother, can you spare a dime?
These economic problems
in the
y S.A.*.t. .*p.ri.nced in many
I
Luropean countries as
well. So
American firms also
found it difhcult to sell goods
abroad.
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tv
o
B
B usiness
The
Cycle
to save for the future. Less spending means fewer
sales, further reductions in production, and more
layoffs. Higher interest rates and weak demand
discourage people from starting new businesses,
and the number of banlruptcies increases. When
a recession lasrc a long time, or is especiaily
ffi"'1*%
Recovery
Inflation
.s
w
€
Trough
severe,
Retces"sion
%
Depression
Economists defiae the business cycle as the fluctua(chang-e)
in the level of economic activiry that
an economy goes through over time. The economy
does not grow steadily, but shrinks and upandi.
The business rycle qrpically lasts from three and
halfto seven years, and has four stages.
.S
:t
)3
of
kz
In
:ds
a
bonowing is cheap.
these consumers starr spending again,
the recoaery stage hzs begun. Companies respond
to increased sales and shrinking inventories by
gradually increasing production. Unemployaent
is stiil high, so wages stay constant and inflation
remains low. Factories do not immediately start
erpanding or hiring since there is still unused
production capacity. The recovery sage lasts
r:ntil the economic ourput of the peak of tie previous expansion is reached. Gromh above this
point takes the business cycle into anor}ler
factories, so workers can ask
for hisher pa;
wages,
together
with
highe. pri".,
$Sh"t
charged by manufacturers, increase inflationwidespread price iacreases in the economy.
Iaterest rates rise alongwith prices, which makes
consumers reluctalrt to borrow money to buy
expensive items such as cars or houses. fu the
expansion phase.
What I)o You Think?
1.
riffs
recessian stage-comparies are faced with
larger inventories and lower profits. ald thev
reduce production. Somerimes thev iav off
workers. At the very least, they stop hirinj, and
stop expanding factories. Unemployed people
cannot afford to spend much money. Those who
do have jobs worry about losing thlm, and rend
Where on the business cycle was the Canadian economy
during the Great Depression? During the ,'Roaring
Twenties"? Use information and ideas from the
2. In the
rtQ
depression.
4. When
These are the four stages of business
rycle:
1. Economic growrh reaches its highest point at the
peak stage of the business cycle. So many goods
are sold. that inventories besin to nm out.
There are not enough workers for the expanding
peak passes, consumers spend less, unsold products accumulate, and profits decline.
irtS'
a
"-rrot
prices for goods. Also, workers cannot
demand
higher pay. As a resulg prices sabilize, or even
decrease, in a condition called deflation. Interest
rates go down. As the low point of rhe recession
passes, conflrmers who have saved money even_
tually begin to spend, since prices are low and
Hgure 5-3 The BusinessCycle
tion
it is called
3. At the traugh stage, dee)snins sales and a zurplus
of workers mean that businesses
,rir.
Foundations feature to explain your conclusions.
2.
In what stage of the business cycle is the current vear?
Support your answer with real-life examoles.
The Great
Depression
1Zg
Explanation:
feel that the Great Depression was caused by
the Stock Market Crash (Black Tuesday, October 29, IgZg),
while others will blane it on the people of the ZOrs and
the careless lifestyle that they 1ed. sone vi1l say that
it was the fault of big business for overprodueing and
the government letting them do so. stirl others wirl sav
that it is a natural thing and that it will happen again
no matter what we do. After discussing this with your
teacher, decide on what you think. could we have another
Exercise:
ror words below using diagram A and
ff".:'llrr"r.r"ns
1abe1 diagram B using
Many people
the 4 words.
Prosperity Recession
Depression Recovery -
D5-agran A
tDr
i'*'i Cu{
ProsperiQr
(lots of jcbs) {h
:
gt
_ao CN
.9,
-) i.
!m
5
G
B
f
-RE
cffi
o
L
o tn
Y
Reccnrerlz
(jobs startirg
z.
Recession
up
(fsrer jes)
again)
A
N
A'
-,ffi
ffi
E.g
@
Dq>ression W
--
(not na.ny jobs)
"Lt
I
J"b:
ffiJ]
Tffi
4...'.g
f
'/4\,
Increased
for
grflA
BUSIHESS
d snarrd
gocds
\
Peop1e have
Higher production
more $ to
ryerd
't
AI
a
l,I
Y
t
B
More tJ-irrgs
are sold
More pecple.
are erplcyed
The "Roaring 20's',
was a period of
econcrnic groubh ard
prosperity. There
Were nEny ns^r dis-
coveries tlrat resulted in high enplclznent.
Peop1e were optinr,istic
arrd felt tliat the
good times would last
forever.
,.5^,
F
Greater pr.ofits
are made
\
Deaeased dsnand
Ttre "Great Depression"
is scrnetimes called
"Ten Lost Years':'.
ft was a period of
fl*eoods \
People have
less
$
I-cr*s production
to
spend
time,
1
People J-ose
their jobs
K-
I-ess thirags
are soldi
snaller
are
5
x
s.
and
ttre
many pecple had
no monqf and could
U
ili
F
decline
not fjnd a jcb.
!
I
I
econcnr-ic
colIapse. D:rirg
maqe
prorits
d
They
were verfz pessirn-istic
about tjrei-r futr:re
ard thonght tJle
would last forenrer.
sed
FrosPeretg egetse
3 9?ss
tvages d
buyi
DepressEcn
" t 93Gs egeEe
un
lab
ment,
ent
e5
,-J,
1li':t
i- ', :a
.:'
x$ri\S
E
-.8
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ffE
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