Causes of the Great Depression

There are various explanations for the causes of the great depression that started in 1929. Some of the most likely causes are given below:

1. OVER-PRODUCTION AND OVER-EXPANSION

• During the decade of the Roaring Twenties, many industries expanded their production beyond demands.
• Much money was spent adding factories and building new ones
• There was an over-production of goods that remained unsold in warehouses over Canada
• Many workers were laid off, and laid-off workers did not have the money to spend
• Wages were low, and people could not buy all the goods produced by the factories

2. CANADA’S DEPENDENCE ON A FEW PRIMARY PRODUCTS

• Canada’s economy depended on a few primary or basic products, called staples.  Staples are the main products that are regularly produced in a country. The staples on which Canada depended were wheat, fish, minerals, and pulp and paper and these made up the bulk of the country’s exports.
• There was a decrease in demand for Canadian products in other parts of the world that were hit by the Depression. The Maritimes, with its dependence on fish, and the West, which depended on wheat, were most badly hit by the Depression.
• There was also a decrease in wheat prices on the world market due to increased competition from other countries. As well, Western farmers faced terrible droughts during the summers of 1929, 1931, and 1933 – 1937
• Railways and flour mills lost business due to the lack of the wheat production

3. CANADA’S DEPENDENCE ON THE UNITED STATES

• Canada depended heavily on the United States for its export and import of goods. Sixty- five percent (65%) of Canada’s imports and 40% of its exports were from the United States.
• The US was Canada’s biggest trading partner: the largest buyer of Canadian products and most important supplier of investment funds
• When the US became affected by the Depression Canada also suffered. America no longer brought Canadian lumber, paper, wheat or minerals. In the end, Canada suffered, as industries collapsed.

4. HIGH TARIFFS (TAXES) BLOCKED INTERNATIONAL TRADE

• In the 1920s European countries were just recovering from the First World War. They needed many products manufactured in Canada and the United States, but they were often unable to pay for these goods. Meanwhile, many other countries adopted a policy known as protective tariffs.
• Meanwhile, many other countries adopted a policy known as protective tariffs. In order to protect their industries at home, many countries charged high tariffs (taxes) on foreign goods.
• Other countries would also do the same: soon trade between nations began to slow down around the world.
• High tariffs choked off international trade.

5. TOO MUCH CREDIT BUYING

• By 1929, credit buying was a well-established custom in Canada.
• Many families got in debt with credit buying. With credit buying, many goods ended up costing much more than they were worth.
• Many people lost their possessions because they couldn’t make the payments.

6. TOO MUCH BUYING OF CREDIT STOCKS

• Many people saw the stock market as an easy way of making money. Almost everyone who had some money wanted to invest in the stock market. People could buy stocks on credit, just the same as they could buy a refrigerator.
• Many people borrowed money from brokers with the hope that stock would rise quickly.
• By October 1929, stocks started to fall: people became panicked and began to sell and get out of the market. Prices fell even lower, until the entire stock market crashed on October 29, 1929.
• Shareholders and investors lost millions of dollars. The Great Depression had begun.

7. THE GREAT CRASH: “BLACK TUESDAY”

• The day the stock market crashed, October 29, 1929, became known as “Black Tuesday.” During the 1920s many people dreamed of getting rich, so they invested heavily in the stock market. They bought plenty of stocks when their price is low and sell those stocks when their price is high.
• On “Black Tuesday” many people who had invested in the stock market lost everything in the crash. The Stock Market crash was perhaps the single most dramatic event that signaled the beginning of the Depression.