The worldwide economic crisis that engulfed Canada in the 1930s was not the first downturn in the business cycle of modern capitalist economies to afflict the country. Serious depressions had been experienced in the 1870s and 1890s and a severe recession had followed the end of World War I. What made the collapse of the 1930s special was not just its severity, but its persistence and apparent immunity to corrective measures.  

There are many explanations of what caused the depression of the 1930s, none of which are widely agreed upon. The stock market crash in the US in 1929 and the ensuing financial panic were spectacular, but not unprecedented. Evidence that production of many goods in the 1920s was "outrunning" demand leaves unanswered why such a "glut" of production would occur. The trade war sparked by countries like the US raising tariffs to protect domestic employment certainly aggravated the situation, but could hardly have caused it. Financial instability and contraction of credit, the failure of the American Federal Reserve to prevent a reduction in the US money supply were also clearly implicated, but again it is not clear to what extent they were causes or effects of the collapse of output and employment in all the industrialized capitalist economies which had been performing so well under existing financial arrangements. 

What is beyond dispute, however, is that the impact of the Great Depression on Canada was as bad, or worse, than anywhere. 
 
 

• 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

What made the Great Depression so bad in Canada was a combination of circumstances. The Canadian economy was unusually heavily dependent on exports and as income fell in the US and other countries with which Canada traded, the bottom fell out of Canadian export markets. 

Added to this was the coincidence of a period of low rainfall in the Canadian prairie west. Drought devastated the wheat economy. What meagre crops could be produced brought pitifully low returns because world wheat prices fell to unheard of levels. The price of the best grade of prairie wheat fell from over $1 a bushel in 1929 to barely 50 cents a bushel in 1932, reducing farm incomes to less than a third of what they had been in the 1920s. Given the strong linkage effects of the wheat staple, it is not surprising that many industries, including the railways, were hard hit by the devastation of the western wheat economy 

Other staple industries were also severely affected. The market for pulp and paper contracted and prices fell, 'though not so much as the price of wheat. By 1937 the pulp and paper industry was producing at about half its available capacity.  

Some other industries fared better. The mining sector was helped by the soaring value of gold output as deflation set in. Automobiles and other manufacturing industries in central Canada, while hard hit in the early years, began to show signs of recovery as early as mid-decade.  
 
 

• 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

Overall, however, the Canadian business community suffered severe losses, not all of them on paper.  

Surplus capacity and unsupportable debt loads brought widespread bankruptcies, but even those firms which by good luck or good management were able to weather the crisis, cut back severely on investment spending in the early years of the depression and although private investment spending began to increase again after 1933, by the end of the decade it was still far below the levels that had preceded the collapse. 

As in the US, the Canadian banking system responded to the deterioration in business conditions by restricting credit. Loans were called in, new credit became difficult to obtain at any price. The total money supply contracted. 

It must be noted that not all businesses and not all individuals in Canada suffered during the Depression. Falling prices, low costs, unemployed workers desperate for jobs created opportunities for some who were able to seize them. Some family dynasties such as the Irvings in New Brunswick flourished as did some of the country's large corporate enterprises such as Bell Canada. 

But for the mass of Canadians, the thirties were bitterly hard years. 
 
 

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

Labour force data was not collected on a basis consistent with the modern labour force survey before World War II, but it seems likely that the unemployment rate reached something like 17 per cent at the depth of the depression in 1932-33. It then declined until 1937 when it rose again. It did not regain the low levels of the years before the depression until following the outbreak of World War II. 

While there had been some experience with mass unemployment of industrial workers in Canada for a brief period following World War I, there was nothing in place to deal with the kind of situation which existed in the 1930s. There were, of course, some provisions to deal with persons who were "indigent". Charitable organizations existed to help the poor and the incapacitated. There was also a rudimentary system of municipal "relief" available to help persons in crisis situations.  
 

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

As the depression dragged on, however, the existing arrangements for dealing with those in need were overwhelmed.  

To the extent that private charity depended on voluntary contributions, as incomes plummeted such contributions could hardly have been expected to increase.  

As for municipal relief, since it was financed out of local property tax revenues, it could be increased only by raising local tax rates. This was, of course, not feasible under the circumstances. Property tax defaults were becoming commonplace even under existing rates. The alternative was provincial government grants…but this meant either borrowing, which was difficult given the state of financial markets, or raising direct taxes! 

If you recall the provisions of the British North America Act regarding the distribution of responsibilities and revenue raising powers you will immediately grasp the problem this created. Especially in the prairie provinces, but also in the Maritimes, the demands placed on the provincial public finances became unsupportable. 
 
 

• 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

The collapse of the stock market could be dismissed as yet another of the "corrections" investment salespeople speak of when their product falls in value. But surely when stocks become cheap enough they will become more attractive and buyers will begin bidding prices up again? 

When everyone was deploring the lack of money and business people looking for credit to carry them through a period of poor markets, did it make sense for the banks to be reducing the supply of credit? However prudent this might be from a private point of view, was it socially desirable? 

Why did the labour market not seem to be working? Large numbers of workers were available for work, but there didn't seem to be any takers. Were they demanding too high wages? 

Despite falling interest rates, investment spending was either decreasing or increasing only slowly. Was investment spending not sensitive to low costs of borrowing? 

Perhaps market economies were not self-correcting systems after all. 
 
 

• 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

As the economist Joan Robinson once observed, Hitler was eliminating mass unemployment while John Maynard Keynes was still figuring out what caused it. The massive rearmament program initiated by the Nazis in 1932 made Germany the first of the major industrial countries to come out of the depression. 

While it is beyond the scope of our subject to go into what motivated Hitler and those who supported him, it is instructive that fascism rejected the kind of liberal philosophy which led mainstream English language economic theory to place the interest of the individual before that of the group. Individualism, personal freedom, and market decision-making go well together, but in the face of massive market failure remedial measures are difficult to orchestrate which are consistent with such values. 

Invoking the folklore of race and promising to raise the fortunes of individuals by first restoring the power and glory of the state proved to be an effective means of increasing aggregate demand and restoring full employment levels of output in an intellectual environment which had never been particularly hospitable to classical liberal doctrine. 

It was more difficult to devise ways of dealing with the crisis of the 1930s in countries such as the United States where that doctrine had come to be accepted in a strong form. 
 
 

• 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...

The Marxist-Leninist option failed to attract mass support in any of the western industrial democracies. What did was a much softer version of socialism which played down the class-struggle and historical dialectical parts of Marxism and emphasized the merits of combining some central planning and direction of market economies with the political institutions of liberal democracy. Critics, such as Ludwig von Mises and his disciples vehemently denounced such "democratic socialist" programs, asserting the impossibility of reconciling political decision-making with free-markets, private property, and political freedom. Defenders countered by pointing out the evident failures of market systems to perform as advertised and the logic in devising instruments of policy which would force real world market systems to work the way people wanted them to. 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

Unlike other protest movements of the time which started out with a strong regional identity, the CCF, through its informal alliance with the labour movement, began winning support across the country, in the farming communities certainly, but also in the cities and towns. Even before winning office in Saskatchewan to form the first socialist government to be elected in North America, the CCF began winning enough seats in the federal House of Commons to be taken seriously by the Liberal party, led by Mackenzie King, which dominated Canadian political life from the mid-1930s until the late 1950s.  
 
 

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

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

To these ends, Duplessis forged an effective alliance of existing forces in the province, the Church, the anglophone-dominated business community, large foreign investors, and the rural agricultural interests which dominated Quebec political life from the 1930s until the 1960s.  

Appealing to French-Canadian nationalist sentiment, while at the same time making Quebec an attractive place for outsiders to do business, the Union Nationale combined blatant patronage, sometimes repressive use of provincial authority to suppress dissent, and effective administration to provide the province with a form of government which proved effective until the social upheaval of the Quiet Revolution in the 1960s. Its appeal was, however, peculiar to Quebec and had none outside the province. 
 
 

• 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

Their great failure was in not appearing to be doing enough, a failure which led to the Conservatives in Canada becoming associated with hard times. The public relations aspect of all this was made worse by Bennett's own personal image, the embodiment of the fat-cat capitalist flunky, however ill-founded that impression might have been. 

Too late, Bennett and his advisors discovered the magic that Roosevelt had worked in the US with his vote-winning "New Deal" -- a package of initiatives which captured the imagination despite their lack of substance. On the eve of the 1935 federal election Bennett proposed a similar package for Canada, comprising a number of radical-sounding regulatory interventions by government in the economy. The voters did not take him seriously and the Liberals were returned to office to take credit for the eventual economic recovery. 
 

• 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 commission's analysis of the history of Canadian federalism clearly identified the issues involved in the relations between the federal government and the provinces since Confederation and the underlying causes of the policy crisis precipitated by the economic collapse of the 1930s.  

What it proposed was a restructuring the constitutional division of powers, responsibilities, and finances of the country so as to make possible what we refer to today as the delivery of government services to its people.  

Specifically, welfare costs would be shifted from the provinces to Ottawa and the federal budget used to enable all Canadians access to a common level of basic services. 
 
 

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

Unemployment virtually disappeared as war production was organized under the direction of a hastily created planning bureaucracy set up by the federal government under the decisive direction of a former engineer turned politician, the "Minister of Everything", C.D. Howe. 

The constitutional niceties that had obstructed central government management of the economy during the domestic Depression crisis were brushed aside now that there was what could pass as a real crisis, defending the "free world" and all it stood for against the tyranny of Nazi Germany. 

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.  
 
The big problems now had to do with controlling inflationary pressures. These were quite effectively dealt with by appeals to the public to buy government bonds rather than goods and services, by replacing price rationing of some common commodities with physical rationing, and by replacing market determination of wages and prices with government-administered 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

Much more specific were the proposals contained in a blueprint for the British postwar "welfare state" prepared by William Beveridge for the Labour Party in that country during the war years. It promised "cradle to grave" security; guaranteed employment, publicly-funded universal health care, education, and a host of social services including funeral expenses. 

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

Behind all this planning for a new postwar world hovered the new macro-economic theory of John Maynard Keynes, whose great treatise, The General Theory of Employment and Income published in 1936 showed how it could all be done. 
 

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