Topic 2: Contemporary World and the Economy From the roaring 20s to the Great Depression to World War 2 The Roaring 20s During the 1920s, the Canadian and Quebec economies experienced a period of prosperity. Europe, which had been gravely affected by the First World War, invested in reconstruction and began, once again, to obtain supplies in different markets. It thus pumped money into the world economy as European countries purchased materials from all over the world. As a result of companies selling more, production was up and workers were filling their bank accounts with improved salaries. With this came an increase in consumers purchasing power, people could now buy whatever they wanted! The Quietly Depressive 30s However, this new purchasing power was not able to absorb all that was produced, and surpluses accumulated in warehouses. In an effort to rectify this situation, companies curbed their rate of production and proceeded to lay off workers, which consequently, depreciated the value of companies on the stock exchange. This created a climate of insecurity among investors, who then stopped entrusting their hard earned money to banks. Deprived of this money (called capital) banks went bankrupt. The Crash of 1929 This sequence of events culminated in the Crash of 1929, when stock prices on the New York Stock Exchange collapsed. Therefore, the root of the crash was an overproduction problem. The fall of stock prices marked the beginning of a serious economic crisis not only in the United States, but also throughout the rest of the world. The Canadian economy was badly affected by the recession, as it relied mainly on exports to the United States. Getting Down to Business: Canadamuseum.qc.ca/scripts/projects/CH/anim CH.php?tourID=GE_P3_2_EN&Lang=1 &type=quicktime9http://www.mccord- museum.qc.ca/scripts/projects/CH/anim CH.php?tourID=GE_P3_2_EN&Lang=1 &type=quicktime9 The mechanics of the crisis of the 1930s 1.Overproduction and accumulation 2.Fall of prices 3.Loss of investor confidence 4.Decline in stock values 5.Profitability problems of companies 6.Production decline 7.Layoffs and unemployment 8.Weak consumer purchasing power Overproduction and accumulation Companies were making more products than they were selling. Products were piling up. Fall of prices Company now desperately needed to get rid of their products that are piling up. They drop prices to get people to want to buy these products. Loss of investor confidence People investing money in these companies began to worry about the state of the companies they invested in. Decline in stock values Since companies are not doing well in terms of production, the value of these companies stocks on the stock market go down. Profitability problems of companies These companies were now unable to encourage investors to invest their money so there are less profits being made. Production decline Now that companies are unable to make much of a profit, they cut down on the production because it costs a lot. Layoffs and unemployment Low production means there is less of a need for workers. People are being laid off. Weak consumer purchasing power Since many no longer have a job, they now no longer have money to spend as they please so their ability to make purchases declines. The Dirty Thirtiesmuseum.qc.ca/scripts/projects/CH/anim CH.php?tourID=GE_P4_1_EN&Lang=1 &type=quicktimehttp://www.mccord- museum.qc.ca/scripts/projects/CH/anim CH.php?tourID=GE_P4_1_EN&Lang=1 &type=quicktime The Great Depression of the 1930s: The effects of the stock market crash were felt for almost a decade. Between 1929 and 1933, Canadian exports fell by 50%. In 1933, when the Great Depression was at its worst, more than a quarter of Canadas active population was out of work. State Intervention When the federal government decided to do something about the situation, it did so by putting into place a protectionist trading policy. The government was trying to encourage purchasing of domestic products (made in Canada) and block international competition from selling their products in Canada. The protectionist trading policy forced any outside competition to pay a high tax if they wanted to sell their products in Canada. Unfortunately, this idea only worsen the situation as it deterred other countries from wanting to purchase Canadian products. This led to a slowdown of industrial output. Important words for this time period 1.Prosperity 2.Depreciate 3.Bankrupt 4.Overproduction 5.Recession 6.Protectionist 7.Victory Loan Bonds Prosperity An economic state of growth with rising profits and full employment. This means companies are making money and nearly everyone has a job and is getting a salary. Depreciate To reduce in value over time. The worth of companies during the Great Depression went down or reduced because they were not able to make as much of a profit since consumers were not purchasing their goods. Bankrupt To formally declare an inability to pay off debts (money) owed. Companies or banks were unable to pay back the money they owed so they declared themselves bankrupt. Overproduction To manufacture or produce too much of a product such that it is not all being purchased. To produce in excess, more than what is needed. Recession The state of the economy declines. Not as much is being produced, distributed or consumed and therefore companies will lose money Protectionist An economic rule put into place that limits and controls trade between countries, through methods such as tariffs (taxes) on imported goods. The purpose is to protect the countrys economy. Victory Loan Bonds The Canadian government issued Victory Loan Bonds to the public to raise money for its involvement in World War I. Canadians would buy Victory Loan Bonds from the government as a way of temporarily lending money to help in war efforts. With this money, the government would be able to pay for all of its war expenses. All money would be given back to Canadian, with interest, when they cashed in their bonds. Great Depression in Pictures