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Canada had experienced severe downturns in economic activity in the 1870s, 1890s, and at the end of World War I, but nothing like the depression of the 1930s which was unusual for its severity and length. 

What caused it and why was it so bad? 

- nothing uniquely "Canadian" could have caused it because it happened in most other developed countries at about the same time  

- not the stock market crash in the US in 1929 -- there had been earlier financial panics which had far less devastating effects 

- not "overproduction" of goods in the 1920s, because we have no reason to believe people in the 1930s had more goods than they needed...or wanted -- anything but! 

- not international economic rivalry, although that certainly made it worse once it began 

- possibly the failure of the American Federal Reserve to immediately support the credit supply, although that gets us into an ongoing doctrinal debate in economic theory. 

• World-wide economic collapse 
• Perhaps more severe in Canada than in the US or UK 
• collapse of exports 
• drought on prairies 
• GNP falls from 4.7 billion $C in 1929 to 2.4 billion in 1932

Why so bad in Canada? 
- the Canadian economy still had a very large export component and when the US economy collapsed so did Canadian exports (example: by 1937 pulp and paper producers were operating at 50% of capacity). 
- the drought in Western Canada that caused massive crop failures 
- the fall in world wheat prices 
   
  
  

• corporation profits in Canada fell from nearly 4 billion in 1929 to MINUS 98 billion in 1933 
• private investment spending plummeted 
• the total money supply shrank from 2.3 billion to 2 billion

While some Canadian industries withstood the crisis (gold mining actually boomed, some large companies like Bell Canada prospered, and the Irving empire in the Maritimes expanded) most cut back drastically on investment, many simply failed. 

The commercial banking system curtailed credit to reduce losses due to bad debts and the money supply contracted.  

For most Canadians, the thirties were bitterly hard years.  
  
  

• mass unemployment of the industrial labour force 
• no unemployment insurance 
• only recourse -- going on "relief"

Mass unemployment increased rapidly in 1930, peaked in 1932-33, declined until 1937 and began to grow again until eliminated with the outbreak of  World War II 

There was no unemployment insurance.  

• charity supplemented by municipal "relief" for indigents 
• provincial responsibility under BNA 
• inability of poorer provinces -- especially prairie -- to finance

Municipal and private charitable services designed to meet the needs of  "indigents"  were overwhelmed.   
- municipal "relief" was financed by local property taxes which became difficult to collect and impossible to increase 
- private charity depended on contributions...which declined as people's incomes fell 
- provincial government funding was almost impossible to provide in some provinces because the governments either could not, or were afraid to increase their debt burden. 
  
  

• collapse of stock market 
• "irresponsible" promotion and manipulation? 
• collapse of financial system 
• conflict of private and public responsibility of banks? 
• collapse of labour market 
• falling wages, declining employment opportunities 
• collapse of capital market 
• falling interest rates, declining investment

Was something fundamentally wrong with the free-market, capitalist system?  

Had the time come to look for an alternative to it?  
  
  

• Germany 
• "national socialism" 
• reassertion of the interests of the group over the interests of individuals 
• rejection of the ideal of reason in favour of romantic appeal of "folk", "race" 
• massive rearmament

 

A massive rearmament program initiated by the Nazis in 1932 made Germany the first of the major industrial countries to recover from the Depression.  

The appeal of fascism: 
- rational, coordinated management 
- a collective "will" transcending the selfish interests of individuals 
- a common purpose  

Rejection of weak liberal-democratic decision-making. 
 

• UK Labour Party 1924, 1929-31 
• Australia Labour Party 1929-32, 1941-49 
• New Zealand Labour Party 1935-1949 
• Sweden, Denmark, Norway…1920s on 
• Canada, Commonwealth Cooperative Federation, Sask. 1944...

Marxism provided what many found to be an intellectually appealing alternative to market capitalism, but, despite the favourable impression created by the Soviet experiment in Russia, the Marxist-Leninist option failed to attract mass support in any of the western industrial democracies.  

A more acceptable alternative there was a more moderate form of socialism compatible with established  liberal-democratic values. 

But could such a system combining central planning with the political institutions of liberal democracy be made to work? 

Critics, such as Ludwig von Mises argued that it could not because political decision-making could not be economically efficient. 

Socialists countered by pointing out the evident failures of market systems to perform as advertised 

- and some economists (notably Oscar Lange) demonstrated that a centrally planned economy could (theoretically) lead to the efficiency outcomes promised (but not delivered) by perfectly competitive markets.

Many democratic socialist governments were elected and given a chance to show what they could do.  
  

• The Regina Manifesto 1933 
• "We aim to replace the present capitalist system, with its inherent injustice and inhumanity…." 
• agrarian protest + links to organized labour 
• growing national support in late 1930s

- left-leaning academics 
- prairie radicals 
- Christian reformers 
- organized labour supporters 

Gained strong local support in Saskatchewan and formed first socialist government elected to office in North America in 1944. 

Also won seats in Ontario and became a threat to the traditional Conservative and Liberal parties nationally. 

• Alberta movement 
• agrarian protest + 
• radical economic theory of Major C.H. Douglas 
• under consumption corrected by social dividend 
• William Aberhart 1935-43 
• Ernest Manning 1943-71

- peculiar theoretical foundation provided by a British engineer, Major Douglas.  
- underconsumptionist theory to explain depressions, remedy in distribution of a regular "social dividend" to citizens to encourage consumption spending 
 

Held ffice in Alberta from 1935 until 1971.  
  
  

• Maurice Duplessis 
• social and economic "reform" in Quebec 
• in office 1936-39; 1944-59 
• French-Canadian "nationalism" 
• tradition 
• authority 
• anti-communism

- the powerful Roman Catholic Church in the province 
- the anglophone-dominated business community 
- foreign investors 
- rural agricultural interests 

Dominated Quebec political life from the 1930s until the 1960s by appealing to French-Canadian nationalist sentiment, while making Quebec an attractive place for outsiders to do business 
 

• R.B. Bennett 1930-35 
• initial response: 
• increase tariffs 
• deport "aliens" 
• balance the budget 
• work camps for the unemployed
• his 1935 election-eve "conversion" 
• a Canadian "New Deal" 
• Liberal victory

- raised tariffs to protect jobs 
- trying to reduce  spending to keep its budget balanced 
- deporting some "undesirables" 
- establishing "work camps" for unemployed males 

On even of the 1935 1935 federal election Bennet responded to declining public support by proposing a Canadian version of Roosevelt's "New Deal"  

Too late -- the Liberals won the election and remained in power for the next 22 years.  
  

• Royal Commission on Dominion-Provincial Relations 
• analysis of history of federal-provincial arrangements under BNA 
• proposed shifting of welfare costs to federal level 
• tax transfers 
• equalization payments to redistribute income from the "have" provinces to the "have-nots"

- the first comprehensive study of Canadian economic development since Confederation 
- a detailed analysis of federal-provincial relations  
- a proposed restructuring of the constitutional division of powers, responsibilities, and finances of the country to overcome the problems its analysis revealed 

• Centralized direction and control from Ottawa 
• wage and price controls 
• rationing 
• Massive government spending 
• Borrowing to finance the war effort

Unemployment and less-than-capacity production was eliminated by government spending to finance Canada's contribution to the war effort, under the direction of the "Minister of Everything", C.D. Howe.  

The public finance and jurisdictional problems addressed by the Royal Commission disappeared with the federal government's assertion of control on the grounds of a national emergy.    

The "book-keeping" constraints which had hobbled government intervention in the Depression economy were quickly dismantled to finance the war effort. As much money as needed could be created by the central bank…which would simply purchase government bonds.   
  

A new problem emerged as the economy heated up -- the risk of inflation 

This was dealt with by: 
- appeals to the public to buy government bonds rather than goods and services 
- physical rationing 
- wage and price controls.   
  

• Rethinking social security 
• the American New Deal under Roosevelt 
• the Atlantic Charter, 1941 
• the Welfare State in Britain 
• the Beveridge Report
• the Marsh Report in Canada 
• comprehensive security as a right of citizenship
• Keynesian economics 
• the White Paper on Employment and Income

There was concern that the ugly aftermath of World War I would be repeated, with a postwar recession, unemployment, social unrest. 

In the UK a blueprint for the British postwar "welfare state" prepared by William Beveridge for the Labour Party was promising that everyone would be able to enjoy  "cradle to grave" security; guaranteed employment, publicly-funded universal health care, education, and a host of social services.

In Canada a similar planning document, the Marsh Report, proposed a comprehensive social security program for postwar Canada, received a rather luke-warm hearing from Mackenzie King.   

Behind all this planning hovered the vaguely understood  new macro-economic theory of John Maynard Keynes, whose great treatise, The General Theory of Employment, Interest and Money,  published in 1936, showed how it could all be done.  

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