CANADA HISTORY

Economic Slump

After the stock market collapse on October 29, 1929, known as Black Tuesday, the global economy began to spiral into what would become the Great Depression. At first, many believed the economic downturn was temporary and expected the markets to bounce back to their summer highs. Financial experts, politicians, and the media reassured the public with phrases such as "the economy remains fundamentally sound" and "constructive optimism." There was a widespread belief that the booming economy of the 1920s would resume. However, the optimism quickly faded, and Canada, like much of the world, descended into one of the worst economic crises in modern history.

In the aftermath of the crash, many individuals and businesses had their disposable income and life savings wiped out. As people lost their investments, they began to cut back drastically on spending. This decline in consumer spending caused businesses to slow production and lay off workers. As more people lost their jobs, demand for goods and services decreased further, creating a deflationary spiral. In a deflationary economy, prices drop, but so does purchasing power, which only worsens the economic slowdown.

This vicious cycle of decreasing consumption and increasing unemployment intensified throughout Canada, deepening the Depression. Without enough customers, businesses of all kinds—from manufacturers to small retail shops—were forced to close. As the Depression worsened, governments found themselves receiving significantly less revenue from taxes on sales and income, further reducing their ability to intervene in the economy.

At this critical juncture, government stimulus spending could have helped stabilize the situation. However, in Canada, the federal government, led by the Liberal Party under Prime Minister Mackenzie King, refused to engage in large-scale public spending. Similar to the Republicans in the United States, Canadian politicians believed in the necessity of balancing the budget, even in the face of economic collapse. They opted to reduce government spending in an attempt to balance the books, rather than incurring more debt to stimulate the economy.

This decision proved to be disastrous. By cutting government spending, money was effectively removed from the economy, exacerbating the economic slowdown. Without government intervention to boost economic activity, the depression worsened, pulling more businesses and individuals into financial hardship. The lack of public works programs and relief efforts left cities and towns across the country struggling to cope with rising poverty and unemployment.

Banks and financial institutions also played a key role in worsening the crisis. Throughout the 1920s, many banks had provided loans to fuel the stock market bubble. When the market crashed, banks faced significant losses from loan defaults, bankruptcies, and falling housing prices. As their investments and loans turned bad, banks began to tighten lending standards, consolidating their resources and pulling money out of circulation. The inability of businesses and individuals to secure loans further stifled economic activity, preventing companies from expanding and people from making large purchases.

As the Depression deepened, the optimistic attitude of the Roaring Twenties—a time of economic growth, rising wages, and technological advances—quickly turned into pessimism and skepticism about the future. Public faith in capitalism and the Western economic system began to erode. People who had once thrived in the prosperous 1920s now questioned whether the system itself was broken. This crisis of confidence meant that consumers were reluctant to spend money, even if they had it, fearing worse economic times ahead. Many Canadians delayed purchases, preferring to make do with what they had rather than spending money they might need in the future.

Internationally, governments responded to the Depression by raising protective tariffs. Countries, including Canada, increased tariffs in an effort to protect their domestic industries from foreign competition. However, this strategy backfired. Instead of helping national economies, the tariff hikes reduced international trade, further slowing global economic growth. In Canada, higher tariffs on imported goods led to higher prices for consumers, discouraging them from making purchases unless absolutely necessary. As trade declined, businesses that relied on exporting goods, such as Canadian wheat farmers and manufacturers, suffered significant losses.

By the early 1930s, the cogs and machinery of business and commerce in Canada had ground to a halt. The Federal government remained largely passive, offering little in the way of relief or intervention to kickstart the economy. In January 1930, as the situation became dire, the mayors of major Canadian cities gathered in Winnipeg to call for federal action. They asked the government to provide funding to municipal governments for relief efforts and to launch public works programs that would put unemployed Canadians back to work. However, the federal government, under King, did not respond to these requests, believing that such interventions were beyond its jurisdiction.

By 1932, Canada had sunk into complete despair. The Depression had reached depths no one could have predicted. In rural areas, droughts and poor crop yields compounded the economic crisis, especially in the Prairie provinces, where farmers were devastated by both natural and financial disasters. Unemployment rates soared to unprecedented levels, with more than 30% of the workforce out of a job. In urban areas, poverty and homelessness became widespread, and the social fabric of the country began to unravel. Soup kitchens, bread lines, and makeshift shelters became common sights in cities such as Toronto, Montreal, and Vancouver.

In the United States, the entire banking system was on the brink of collapse as bank runs became commonplace, with depositors rushing to withdraw their savings before banks failed. Many Canadian banks faced similar pressures. By the end of 1932, the Canadian economy had hit rock bottom, and there seemed to be no end in sight.

The Great Depression had profound consequences for Canadian society and politics. It shattered the illusion of unending prosperity that had characterized the 1920s and laid bare the weaknesses of laissez-faire capitalism. The economic collapse led to a re-examination of government’s role in the economy, ultimately contributing to the rise of welfare states in Canada and elsewhere. New political movements emerged, such as William Aberhart’s Social Credit Party in Alberta and the Co-operative Commonwealth Federation (CCF), a precursor to the New Democratic Party (NDP), which called for greater government intervention in the economy and the creation of social safety nets.

The long struggle of the Depression, which lasted well into the late 1930s, fundamentally reshaped Canadian identity. It fostered a sense of resilience and solidarity among Canadians, but it also exposed deep divisions between regions and social classes. The Depression's effects lingered for decades, influencing economic policies and political decisions that sought to prevent such a catastrophe from ever happening again. As a critical period in Canadian history, the Great Depression not only tested the country’s economic and political institutions but also paved the way for modern Canadian social programs and a more active role for the federal government in managing the national economy.