C. Canada, 1929–1945 · Canada, 1929–1945: Depression, Extremism and the Second World War

Boom to Bust: The 1929 Crash and the Causes of the Great Depression

C1.3 A1.1 A1.5 A1.9About 70 minutes

Learning goals

I can explain what happened in the stock market crash of October 1929.
I can explain how buying on margin, overproduction, dependence on staple exports, high tariffs and debt helped cause the Great Depression.
I can tell the difference between a short-term trigger and long-term causes.
I can use the historical thinking concept of cause and consequence to explain why Canada was hit so hard.

Words to know

Great Depression
The severe worldwide economic collapse of the 1930s, with very high unemployment, falling prices and falling incomes. In Canada it lasted from 1929 until the Second World War.

stock
A share of ownership in a company. Stocks are bought and sold on a stock exchange (for example in Toronto, Montreal or New York).

speculation
Buying something, such as stocks or land, mainly in the hope of selling it soon at a higher price, rather than for its long-term value.

buying on margin
Buying stocks by paying only part of the price (often 10%) and borrowing the rest from a broker.

margin call
A demand from a broker that a buyer who bought on margin pay back the loan, often when prices fall.

overproduction
Producing more goods than people can afford to buy, so unsold goods pile up and prices fall.

staple
A raw material that a region produces and exports in large amounts, such as wheat, newsprint, lumber, minerals or fish.

tariff
A tax on imported goods. High tariffs protect a country's own producers but reduce trade.

protectionism
A policy of protecting a country's industries from foreign competition, mainly with high tariffs.

cause and consequence
A concept of historical thinking: identifying the factors that led to an event and the results that followed, and judging which mattered most.

Remember from Grade 8 and Unit B

In Grade 8 History you used the concepts of historical thinking to study Canada from 1850 to 1914. In Unit B (Canada, 1914–1929) of this course you studied the First World War and the 1920s, a decade that ended with a boom: new cars, radios, and factories, and rising stock prices. This unit, Canada, 1929–1945, begins with that boom ending, very suddenly.

Hook: one very bad Tuesday

On Tuesday, October 29, 1929, stock prices on the New York Stock Exchange collapsed. Panicked owners tried to sell millions of shares at once, and there were not enough buyers. The stock exchanges in Toronto and Montreal crashed at the same time. The day became known as Black Tuesday.

Fortunes that existed on paper on Monday were gone by Wednesday. But here is the puzzle for today: a stock market crash affects people who own stocks, and in 1929 most Canadians did not own any. So why did a crash in New York help lead to ten years of hard times for farmers in Saskatchewan, miners in Nova Scotia and factory workers in Ontario?

To answer that, you need to think like a historian about cause and consequence.

The 1920s boom had weak foundations

In the late 1920s many Canadians felt rich. Factories made cars and radios, mines and paper mills were busy, and wheat sold well. But the boom rested on some shaky supports:

Speculation. Many people bought stocks only because prices kept rising, hoping to sell them for more.
Buying on margin. A buyer might pay only about 10% of a stock's price and borrow the rest. That works while prices rise. When prices fall, the broker makes a margin call, and the buyer must repay the loan, often by selling, which pushes prices down further.
Overproduction. Farms and factories produced more wheat, newsprint, cars and other goods than people could buy. Warehouses filled up and prices began to slide even before the crash.
Debt. Families bought cars and appliances on credit (instalment plans), and farmers borrowed to buy land and machinery. Debt is hard to repay when income falls.
Uneven wealth. A small group earned a large share of the income. Most workers' wages did not rise enough to buy everything that was produced.

The economy moves in a business cycle. Canada went from a boom in the late 1920s to the trough of the Depression around 1933. Recovery was slow until wartime spending after 1939. (Shape simplified, not to scale.)

Why Canada was hit especially hard

Canada's economy depended on exporting staples: wheat from the Prairies, newsprint and pulp from Quebec and Ontario, lumber from British Columbia, minerals, and fish from the Atlantic coast. When the world economy slowed, other countries bought less, and prices for these goods dropped.

Wheat. Many countries were growing more wheat. Prices fell to their lowest level in recorded history. Then drought struck the Prairies (you will study the Dust Bowl next lesson). According to The Canadian Encyclopedia, Saskatchewan's income fell by 90% within two years.
Dependence on the United States. The U.S. was Canada's biggest customer and biggest source of investment. When the American economy collapsed, Canada's did too.
Tariff wars. In 1930 the United States passed the Smoot–Hawley Tariff, raising taxes on imports to protect American producers. Canada and other countries raised their own tariffs in return. World trade shrank, and a trading country like Canada suffered.

The result: by 1933, about 30% of Canada's labour force was out of work, and the country's total spending (Gross National Expenditure) had fallen by 42% since 1929.

If Canada's whole economy in 1929 is counted as 100, by 1933 it had shrunk to about 58. That is a fall of 42% in four years.

Each arrow is a consequence that becomes the cause of the next step. Economists call this a downward spiral; it is why the slump kept getting worse until about 1933.

Historical thinking: cause and consequence (A1.5)

Historians rarely accept a single cause. When you explain an event, sort causes into:

Long-term causes: conditions that built up over years (overproduction, debt, dependence on staples and on the U.S.).
Short-term causes or triggers: the spark that set things off (the crash of October 1929).
Types of cause: economic, political (tariff policies), social, environmental (drought).

Then rank them: which cause was most important, and why? A good answer gives evidence for its ranking.

Worked example

Let's sort the causes of the Great Depression in Canada

A student writes: "The Great Depression was caused by the stock market crash." Use cause and consequence to improve this claim.

Identify the trigger. The crash of October 1929 was a real cause, but it was the short-term trigger. It did not, by itself, cause ten years of hardship.
Add long-term economic causes. Overproduction of wheat and newsprint, heavy debt and buying on margin had made the economy fragile before the crash.
Add Canada-specific causes. Canada relied on exporting a few staples, mostly to the U.S. and Britain, so falling world demand hit Canadian jobs directly.
Add political and environmental causes. The 1930 Smoot–Hawley Tariff and Canada's own higher tariffs shrank trade; drought ruined Prairie harvests.
Rank and justify. Many historians would rank Canada's dependence on staple exports as the most important reason Canada was hit so hard, because it explains why falling world prices became Canadian unemployment.

Improved claim: "The 1929 crash triggered the Great Depression, but Canada suffered so badly mainly because its economy depended on exporting a few staples. Overproduction, debt, high tariffs and drought turned the crash into a long depression."

A note on questions (A1.1)

Your inquiry questions shape what you find. Compare:

Factual: When did the stock market crash?
Causal: Why did the crash lead to such high unemployment in Canada?
Comparative: Was the Depression worse on the Prairies than in Ontario?
Judgement: Which cause of the Depression was most significant for Canada?

The last three need evidence and reasoning, which is what Grade 10 history asks of you.

Hands-on activity

Margin buying with play money

You need: play money from a board game (or paper slips marked $1, $5, $10), a pencil and paper, and one other person to be the "broker".

A share of "Maple Radio Co." costs $10. You have only $10 of your own money.
Buy 10 shares on margin: pay $1 per share yourself ($10 total) and borrow $9 per share ($90) from the broker. You now own shares worth $100 and owe $90.
The price rises to $12. Your shares are worth $120. You owe $90, so your own share of the value is $30. You tripled your money!
Now the price falls to $8. Your shares are worth $80, but you still owe $90. The broker makes a margin call: repay the loan.
You must sell all 10 shares for $80, and you still owe $10 more.
Write two sentences: Why did margin buying make people's gains and losses bigger? What happens to prices when thousands of people must sell at once?

What to look for: at the $8 price, you have lost your original $10 and are $10 in debt. When everyone is forced to sell, prices fall further, which is what happened in October 1929.

Just for fun

In stock-market slang, a bull market is one where prices rise and a bear market is one where they fall: a bull tosses things up with its horns and a bear swipes down with its paws. October 1929 was when the bears won, by a lot.

Your turn

What happened on Black Tuesday, and when was it?

Explain buying on margin in your own words.

Why was overproduction a problem in the late 1920s?

Name four staples Canada exported in the 1920s and 1930s.

What was the Smoot–Hawley Tariff, and how did it hurt Canada?

Is the stock market crash a long-term cause or a short-term trigger of the Depression? Explain.

What share of Canada's labour force was unemployed by 1933?

More practice: warm-up

What is a stock?

What is a tariff?

In what year did the stock market crash?

Which country was Canada's biggest customer and source of investment?

By how much did Canada's total spending (Gross National Expenditure) fall from 1929 to 1933?

More practice: on your own

Explain why most Canadians were hurt by a crash even though they did not own stocks.

How did Canada's dependence on staple exports make the Depression worse?

Write one causal and one judgement inquiry question about the Great Depression.

Why is a tariff war bad for a country that relies on trade?

How did debt make families and farmers more vulnerable after 1929?

Challenge

A historian says: "The Great Depression was not caused by one event but by a fragile economy meeting a shock." Explain this claim using at least three causes.

Rank these causes for Canada from most to least important and justify your top choice: the crash, overproduction, dependence on staple exports, U.S. tariffs, drought.

Use the downward spiral to explain why the economy kept getting worse from 1929 to 1933 instead of recovering quickly.

Check your understanding

Quiz

When did the stock market crash known as Black Tuesday happen?

What does buying on margin mean?

Why was Canada especially hard hit by the Depression?

What did the 1930 Smoot–Hawley Tariff do?

Which is a long-term cause of the Depression?

About what share of Canada's labour force was unemployed by 1933?

For parents and teachers

Big idea: This lesson covers the economic trend of the 1929 crash and its causes (C1.3) and practises the concept of cause and consequence (A1.5), inquiry questions (A1.1) and subject vocabulary (A1.9).

Common difficulties:

Single-cause thinking. Teens often say "the crash caused the Depression." Push for long-term causes and a ranking with reasons.
Margin buying. The play-money activity makes it concrete; work the numbers together.
Why Canada? Keep coming back to staples and dependence on the U.S.

How to help: Ask your teen to explain the downward spiral to you using a local example (a factory or store in your town). If you have relatives who remember stories from grandparents about the 1930s, these make excellent primary-source starting points for later lessons.