Great Depression of the Early Term Paper

  • Length: 15 pages
  • Subject: Economics
  • Type: Term Paper
  • Paper: #68560425

Excerpt from Term Paper :

In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%." (McElvaine R.S. p. 39) This is further evidence not only of the inequality of general wealth distribution, but also of the severe imbalance that was to create havoc in the economy.

This dilemma was also further exacerbated by the fact that the Federal Government encouraged this situation. For example, President Coolidge signed the Revenue Act of 1926, which in effect reduced tax for the wealthy. "... he was able to lower federal taxes such that a man with a million-dollar annual income had his federal taxes reduced from $600,000 to $200,000.. Even the Supreme Court played a role in expanding the gap between the socioeconomic classes. " (Gusmorino P.A. 1996)

This situation was further worsened by another imbalance, namely the disparity between supply and demand. This was to have far-reaching and damaging effect on the economy and was directly related to inequalities in wealth distribution. " for an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income it is not assured that demand will always equal supply." (ibid)

In effect this was to lead to a surplus of goods and products. The surplus of goods in themselves were not the problem but rather that "those whose needs were not satiated could not afford more, whereas the wealthy were satiated by spending only a small portion of their income." (ibid)

Another factor that was to lead to the crisis was the increase in purchasing; this was to initiate the practice of buying on credit for those who did not have immediate purchasing power. Credit buying become fashionable and "By the end of the 1920's 60% of cars and 80% of radios were bought on installment credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion." (ibid)

This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. By telescoping the future into the present, when "the future" arrived, there was little to buy that hadn't already been bought. In addition, people could not longer use their regular wages to purchase whatever items they didn't have yet, because so much of the wages went to paying back past purchases.

There are also numerous other causative aspects that could be mentioned and expanded on. One of these is the imbalance in industry. The imbalance in wealth meant that only a few industries were almost completely dominant in the economy. In the United States these were the automotive and radio industries. This in turn meant that if these industries were to be negatively affected, then the entire economy would be affected. This was what was eventually to take place. "When the automotive and radio industries went down all their dependents, essentially all of American industry fell. Because it had been ignored, agriculture, which was still a fairly large segment of the economy, was already in ruin when American industry fell. (ibid)

In summary the Great Depression was caused by numerous factors which led to the resultant stock market crash. This had a concomitant effect on confidence and spending relationships within the economy. Once the rich stopped spending and the credit limits of the middle and poorer classes were exhausted, then industrial production fell. With the resultant market crash jobs were lost and many problems were forced into a situation where they began defaulting on their interest payments. "...Unemployment grew to five million in 1930, and up to thirteen million in 19324. The country spiraled quickly into catastrophe. The Great Depression had begun." (ibid)

The core reasons for this situation are summarized as follows.

The core of the problem was the immense disparity between the country's productive capacity and the ability of people to consume. Great innovations in productive techniques during and after the war raised the output of industry beyond the purchasing capacity of U.S. farmers and wage earners. The savings of the wealthy and middle class, increasing far beyond the possibilities of sound investment, had been drawn into frantic speculation in stocks or real estate. The stock market collapse, therefore, had been merely the first of several detonations in which a flimsy structure of speculation had been leveled to the ground.

The Great Depression)

There are of course many other complex factors, such as the problem of the gold standard which played a major part in monetary causes of the Great Depression. However an explication of these causes is outside the range of the present topic.

4. Canada

All of the factors discussed above have application to the situation that was to develop in Canada. The repercussions of the economic crisis in the United States were felt throughout the world and Canada was no exception. In fact Canada is often mentioned as being one of the worst affected countries.

Like the United States, Canada experienced "good times" economically during the Twenties. The unemployment rates were very low in the country as the earnings for both companies and individuals were relatively high. (1929 -1939 - the Great Depression)

However this was also to come to a halt when the stock market collapsed in New York in 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."(ibid) Ironically, during the years between 1900 and 1929 Canada was the world's fastest growing economy. Living standards improved markedly during the 1920's in the country. While the wealth and prosperity of the "roaring twenties" in the United States was largely an illusion and a bubble that was about to burst, the prosperity in Canada was more real and based on more solid foundations. For example, "While housing starts had stagnated in the United States in 1925, for instance, they continued to increase in Canada until May 1929." (Encyclopedia: The Great Depression in Canada)

The advent of the Great depression therefore had an even greater impact on Canada than most other counties as it affected a relatively sound economy. When the Depression began prices in Canasta became rapidly deflated and business activity was sharply reduced. Unemployment rose dramatically to 27% at the height of the Depression in 1933. (1929 -1939 - the Great Depression) Numerous businesses collapsed under the strain of the Depression and corporate profits became corporate losses. " 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.... Canadian exports shrank by 50% from 1929 to 1933."(ibid)

An essential economic aspect that is crucial in understanding the causes and effects of the Depression in Canada was that the country derived 33% of its Gross National Income form exports. (Struthers, J.) Therefore the country was particularly affected by the reduction in world trade. This had a severe effect on the Western Canadian provinces as they depended almost exclusively on exports of primary products. Another aspect was that there had been crop failures prior to the Depression. Saskatchewan for example has been plagued by crop failures and a very low what price. Within two years "provincial income plummeted by 90%. " (ibid) This had the result of forcing more than 60% of the population onto social relief.

The Depression had a similar effect on the other provinces and the Eastern provinces were bankrupt from 1932. (ibid) Ontario and Quebec were less severely affected due to the diversity of their industry. (ibid) There was a certain inequality with regard to those who had to bear the burden of the Depression in Canada. The sectors of the population who suffered the most economically were those who were dependent on primary industry such as farming, mining and logging. This was due to the fact that commodity prices dropped radically throughout the world.

This resulted in the hardship in three Prairie Provinces, where the wheat economy collapsed, and the municipalities where mining and logging were a mainstay. (ibid)

There was also an inequality in the effect of the Depression on various classes in the society. The burden of the Depression was also unequally distributed between classes. Although wages dropped throughout the 1930s, prices declined even faster. As a result, the standard of living of property owners and those with jobs increased. Farmers, young people, small businessmen and the unemployed bore the brunt of economic hardship.

Struthers, J.)

The above events and factors resulted in a marked change in population demographics in the country. The birthrate dropped from 13.1 live births per 1000 in 1930 to only 9.7 by 1937, and "During the 1930s, 50 years of urbanizing momentum were reversed as Canada's rural population (outside of Saskatchewan) grew more rapidly than its urban population. For many of the unemployed "going back to the land" was preferable to a miserable existence on urban…

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