1Ms. Fowler Socials 11

Government Responses tothe Great Depression

Glossary of Terms:capitalism – an economic system in which all aspects of production (i.e. resources, factories, etc.), distribution (i.e. shipping, transportation, warehouses, etc.), sales and profits are owned and controlled primarily by private individuals or corporations

market economy – the economy in a capitalist system

communism – a system of social & economic organization in which all property and ownership is held by the community as a whole or by the state.

Laissez-faire – “leave it alone”; the idea that government should let the economy run itself without interference, regulations, or laws; companies decide themselves how to run business & economy

1st Gov’ts did little or nothing initially

• The rich & governments saw “idleness” (unemployment) as laziness• Mackenzie King —> Would “not give a 5-cent piece” to any Tory-led

province“With respect to giving moneys out of the federal treasury to any Tory Government in this country for these alleged unemployment purposes, with these governments situated as they are today, with policies diametrically opposed to those of this government, I would not give them a five cent piece."1

2nd “Belt-tightening”

• Gov’ts cut back on spending• Did NOT give any relief or change any laws• Became protectionist (tried to protect one’s

own economy from foreign goods) —> Introduced tariffs

• Intended to protect each country’s OWN economy

• As each raised tariffs, OTHER countries raised tariffs in response —> so no one could export

• Made depression WORSE3rd “Relief” —> The “Dole” or “Pogey”

• Gov’ts gave small welfare reliefStrict restrictions / limits —> very little money

• Humiliating for recipients —> “charity”

• “Soup Kitchens” —> churches & other charities gave food; eventually gov’ts also provided food

• R.B. Bennett —> established “Relief Camps”: • Single men transported to camps

—> gov’t afraid so many unemployed men would eventually revolt

• Camps bad idea —> were isolated (far from towns); paid only 20 cents/day

• Bad living conditions —> shacks or tents, poor quality food & little of it, no activities or communication, etc.

• Intensive labour that was ultimately unproductive (not useful work)

Consequences of 1-3:• All political parties / leaders in industrial nations changed• Canada: King —> Bennett —> King• U.S.: Herbert Hoover —> Franklin D. Roosevelt• Germany: Weimar Republic —> Nazis• Britain: Ramsay MacDonald (Labour Party) —> Conservatives• Japan: Short-lived democracy replaced by nationalistic and

imperialistic forces, eventually military-rule

FLAWS OF CAPITALISM

• Many started to see capitalism itself as the cause of the Depression —> greedy industrialists / capitalists overproduced as they pursued ever more profits

• Capitalism —> Laissez faire (no gov’t intervention)• Gov’ts expected economy to fix itself —>• Failed miserably

4th Use of Force (at times)

∙ Gov’ts at all levels (local, provincial, federal) and businesses worried

Fears:

LARGE masses of the unemployed —> Could mobilize —> Revolution?

∙ Europe —> Communists, Fascists & Nazis

∙ New political parties in Canada —> some had radical policies

• Social Credit, Union Nationale, Canadian Commonwealth Federation

∙ Communists & Socialists elected in some Cnd towns & provinces

Gov’t Responses of Force:∙ Vagrancy made illegal —> many arrests

(Vagrancy = having no job and loitering)∙ Police and vigilantes raided shanty towns∙ Railway “bulls” —> used violence against men riding the rails∙ Regina Riot <— Federal Gov’t response to On to Ottawa Trek

5th The “New Capitalism”• Some govt’s started adopting recent theory developed by Keynes (in

The General Theory of Employment, Interest and Money)

****************************************John Maynard Keynes ***

• British economist

• Proposed NEW approach to solving economic depressions

• Gov’ts should give up laissez faire

• Gov’ts must spend their way out of a depression —>

Increase gov’t spending in the economy in order to create jobs —>

Jobs = personal income = increased spending = more production = more jobs

Investment must be in infrastructure (large projects) —>

Build roads, bridges, ports, rail lines, communication systems, dams, etc. Jobs / construction must be projects that in the long-run

improve the economy *** Jobs vs. “relief” —> “relief” seen as charity, but jobs

gave people self-respect & hope

• How to pay for gov’t spending?• Deficit Financing —>

Borrow money & repay later when economy improved

John Maynard KeynesFYI:

Keynes & WWI

• Keynes was a British representative at 1919 Paris Peace Conference. Keynes had warned against forcing Germany to pay severe reparations, that it would lead to another war. He resigned from the British Treasury as a result of reparations.

• Keynes also warned representatives that it was imperative that all international debts from WWI be forgiven.

“The Keynesian Revolution”

• Was THE most influential person in economics for Europe, U.S., and much of the rest of the world from 1930s-1970s.

• Associated with the rise of modern liberalism.

• WWI —> proposed financing war through savings (bonds) and increased taxation.

• Later during WWII, Keynes proposed creation of global financial institutions to help manage the world economy —> forerunners of the World Bank and IMF (International Monetary Fund).

An entire branch of economics developed called “Keynesian Economics” which is devoted to Keynes’ theories of government intervention in the economy, stimulus spending, and deficit financing.

Countries that Adopted Keynes’ Model

U.S.• U.S. President Franklin D. Roosevelt —> created “The New Deal”• Massive relief/spending program —> Americans put to work building

roads (started interstate highway system), dams, electrical systems, national parks, etc.

• But investment insufficient for scale of unemployment problem —>• Economy recovered SLOWLY —> did not fully recover

Sweden:• Very successful stimulus program

OTHER Countries that Adopted Keynes’ Model

Gov’t Responses, Page

Germany

• Hitler adopted Keynes’ theory• Very successful —> although one million still unemployed• Massive building projects : the Autobahn, railroads, docks, dams, electrical

grids, power stations, etc.• But ALSO private industry: coal mines, steel works, factories,

manufactured products (military & consumer, eg. Volkswagen)•

Japan• Korekiyo Takahashi (Minister of Finance) massively increased stimulus

spending• Most successful application of Keynes’ theory —> Japan out of

Depression by 1935• Private & public industry and infrastructure —> built dams for power &

flood control, roads, electrical & power systems• Also focussed, like Germany, on building up military &

industry for war• Takahashi assassinated by military in 1936 when he

proposed reducing stimulus spending (including military)

11. AHW Canada History. http://www.canadahistory.com/sections/eras/crashdepression/bennett.htm Hansard. House of Commons, Debates April 3, 1930.