October 1929 – Stock Market Crash: Markets Suffer the ...
October 1929 – Stock Market Crash: Markets Suffer the Worst Losses in Canadian History
In the late 1920s, Canada’s economy and stock exchanges were booming. From 1921 to the autumn of 1929, the level of stock prices increased more than three times. But these heady days came to a swift end with the stock market crash on Black Tuesday, October 29, 1929, in New York, Toronto, Montréal and other financial centres in the world. Shareholders panicked and sold their stock for whatever they could get.
Overnight, individuals and companies were ruined. It was estimated that Canadian stocks lost a total value of $5 billion on paper in 1929. By mid-1930, the value of stocks for the 50 leading Canadian companies had fallen by over 50% from their peaks in 1929.
The stock market collapse affected all investors—individuals who had been persuaded to buy shares as well as speculators looking to make a fast dollar. Despite the market crash, 1929 was a good year for banks, mines, manufacturing and construction in Canada. All reported record profits at year-end.
Although the crash was sudden and deep, there were signs that it was coming. Earlier in 1929, stock prices had been volatile. Economic slowdowns in May and June hinted that the booming economy was heading for a recession. Export earnings were declining and the price of wheat plummeted.
Economists and historians are still debating what caused the crash. At the time of the crash, Canada had no monetary policy or central bank, so there was little government intervention in the market. Canadian firms had healthy profits and did not expect the boom to end. Corporate profit expectations were inflated. Canadian corporations took advantage of the bull market to issue new stock, which overheated the supply. Banks gave out easy and cheap credit, and let people buy stocks on margin: buyers paid only a fraction of the share price and borrowed the rest. Speculation was rampant: bidding drove up the value of stocks as much as 40 times the companies’ annual earnings. Investors seemed to pay less attention to corporate earnings than to how much their shares would appreciate in value.
The economy could not sustain its rapid growth and the bubble burst. Investors lost confidence in the market. In the United States, the government was blamed for not controlling the speculative frenzy. Because Canada’s economy was so closely tied to that of the United States, the New York crash brought down Canadian markets, too.
It is widely felt that the stock market collapse started a chain of events that plunged Canada and the Western world into the decade-long Great Depression, which ended only with the outbreak of the Second World War.
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1929–1939 – The Great Depression
The Roaring Twenties saw boom times in Canada. Unemployment was low; earnings for individuals and companies were high. But prosperity came to a halt with the stock market collapse in New York, Toronto, Montréal and around the world in October 1929. The crash set off a chain of events that plunged Canada and the world into a decade-long depression. It was the beginning of the Dirty Thirties.
The Great Depression caused Canadian workers and companies great hardship. Prices deflated rapidly and deeply. Business activity fell sharply. There was massive unemployment—27% at the height of the Depression in 1933. Many businesses were wiped out: in Canada, corporate profits of $396 million in 1929 became corporate losses of $98 million in 1933. Between 1929 and that year, the gross national product dropped 43%. Families saw most or all of their assets disappear. Governments around the world, including Canada’s, put up high tariffs to protect their domestic manufacturers and businesses, but that only created weaker demand and made the Depression worse. Canadian exports shrank by 50% from 1929 to 1933.
While all of Canada suffered greatly, the regions and communities hit hardest were those dependent on primary industries such as farming, mining and logging, because commodity prices plummeted around the globe. Thus, the three Prairie provinces, where the wheat economy collapsed, and the municipalities where mining and logging were a mainstay saw the greatest decrease in per capita income between 1928 and 1933.
The economy began to recover, slowly, after 1933. However, the Depression did not end until 1939, when the outbreak of the Second World War created demand for war materials.
Many factors are believed to have caused the Great Depression. Speculation on the stock markets drove share prices to inflated levels, and the bubble burst when stock markets collapsed in the autumn of 1929. Consumer spending dropped, even though prices had been falling. Canada was suffering a trade deficit. Nature was also working against many Canadian farmers, as a devastating drought on the Prairies wiped out wheat crops.
The Great Depression was a turning point for Canada. Before 1930, the government intervened as little as possible, believing the free market would take care of the economy, and that churches and charities would take care of society. But in the 1930s a growing demand arose for the government to step in and create a social safety net with minimum hourly wages, a standard work week, and programs such as medicare and unemployment insurance.
The Depression also led governments to be more present in the economy. It brought about the creation in 1934 of the Bank of Canada, a central bank to manage the money supply and bring stability to the country’s financial system. As well, the world’s severely restrictive trading policies during the Depression were opened up by international treaties such as the General Agreement on Tariffs and Trade (GATT).
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Questions:
1. “Canada was hard hit by the Great Depression.” Provide five specific pieces of evidence to support this statement.
2. Describe and explain why business activity “fell sharply” after the stock market collapse of 1929.
3. Explain why some provinces and regions of Canada suffered more than others.
4. Explain how it is possible for consumers’ demand for products to decline even though the price of products was falling.
5. In what ways was the Great Depression a “turning point” for Canada? Be specific.
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